華滋國際海洋工程有限公司 Watts International ... - HKEXnews

The Stock Exchange of Hong Kong Limited and the Securities and Futures Commission take no responsibility for thecontents of this Post Hearing Information Pack, make no representation as to its accuracy or completeness and expresslydisclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contentsof this Post Hearing Information Pack.

Post Hearing Information Pack of

華滋國際海洋工程有限公司Watts International Maritime Engineering Limited

(Incorporated in the Cayman Islands with limited liability)

(the “Company”)

WARNING

The publication of this Post Hearing Information Pack is required by The Stock Exchange of Hong KongLimited (the “Stock Exchange”) and the Securities and Futures Commission (the “SFC”) solely for thepurpose of providing information to the public in Hong Kong.

This Post Hearing Information Pack is in draft form. The information contained in it is incomplete and is subjectto change which can be material. By viewing this document, you acknowledge, accept and agree with theCompany, its sponsor, advisers or members of the underwriting syndicate that:

(a) this document is only for the purpose of providing information about the Company to the public in HongKong and not for any other purposes. No investment decision should be based on the informationcontained in this document;

(b) the publication of this document or supplemental, revised or replacement pages on the StockExchange’s website does not give rise to any obligation of the Company, its sponsor, advisers ormembers of the underwriting syndicate to proceed with an offering in Hong Kong or any otherjurisdiction. There is no assurance that the Company will proceed with the offering;

(c) the contents of this document or supplemental, revised or replacement pages may or may not bereplicated in full or in part in the actual final listing document;

(d) the Post Hearing Information Pack is not the final listing document and may be updated or revised by theCompany from time to time in accordance with the Rules Governing the Listing of Securities on TheStock Exchange of Hong Kong Limited;

(e) this document does not constitute a prospectus, offering circular, notice, circular, brochure oradvertisement offering to sell any securities to the public in any jurisdiction, nor is it an invitation to thepublic to make offers to subscribe for or purchase any securities, nor is it calculated to invite offers by thepublic to subscribe for or purchase any securities;

(f) this document must not be regarded as an inducement to subscribe for or purchase any securities, andno such inducement is intended;

(g) neither the Company nor any of its affiliates, advisers or underwriters is offering, or is soliciting offers tobuy, any securities in any jurisdiction through the publication of this document;

(h) no application for the securities mentioned in this document should be made by any person nor wouldsuch application be accepted;

(i) the Company has not and will not register the securities referred to in this document under the UnitedStates Securities Act of 1933, as amended, or any state securities laws of the United States;

(j) as there may be legal restrictions on the distribution of this document or dissemination of any informationcontained in this document, you agree to inform yourself about and observe any such restrictionsapplicable to you; and

(k) the application to which this document relates has not been approved for listing and the Stock Exchangeand the SFC may accept, return or reject the application for the subject public offering and/or listing.

If an offer or an invitation is made to the public in Hong Kong in due course, prospective investors arereminded to make their investment decisions solely based on the Company’s prospectus registeredwith the Registrar of Companies in Hong Kong, copies of which will be distributed to the public duringthe offer period.

If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.

華滋國際海洋工程有限公司Watts International Maritime Engineering Limited

(Incorporated in the Cayman Islands with limited liability)

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and the [REDACTED])[REDACTED] : Not more than HK$[REDACTED] per

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The [REDACTED] is expected to be fixed by agreement between the [REDACTED] (on behalf of the [REDACTED]) and us on the [REDACTED]. The [REDACTED] is expected tobe on or around [REDACTED] and, in any event, not later than [REDACTED]. The [REDACTED] will not be more than HK$[REDACTED] and is currently expected to be not lessthan HK$[REDACTED]. [REDACTED] applying for [REDACTED] must pay, on application, the maximum [REDACTED] of HK$[REDACTED] for each [REDACTED] together witha brokerage of 1%, a SFC transaction levy of 0.0027% and a Stock Exchange trading fee of 0.005%.

The [REDACTED], on behalf of the [REDACTED], may, with our consent, reduce the number of [REDACTED] and/or the indicative [REDACTED] stated in this document (whichis HK$[REDACTED] to HK$[REDACTED] per [REDACTED]) at any time on or prior to the morning of the last day for lodging applications under the [REDACTED]. In such case,notice of the reduction in the number of [REDACTED] and/or the indicative [REDACTED] will be published in South China Morning Post (in English) and Hong Kong Economic Times(in Chinese) not later than the morning of the last day for lodging applications under the [REDACTED]. Such notice will also be available at the website of the Stock Exchange atwww.hkexnews.hk and our website at www.shbt-china.com. Further details are set out in the sections headed “Structure and Conditions of the [REDACTED]” and “How to Applyfor [REDACTED]” in this document.

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The [REDACTED] have not been and will not be registered under the [REDACTED] or any state securities law in the United States and may not be [REDACTED], sold, pledgedor transferred within the United States or to, or for the account or benefit of U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registrationrequirement under the [REDACTED].

IMPORTANT

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THIS DOCUMENT IS IN DRAFT FORM, INCOMPLETE AND SUBJECT TO CHANGE. THE INFORMATION IN THIS DOCUMENTSHOULD BE READ IN CONJUNCTION WITH THE SECTION HEADED “WARNING” ON THE COVER OF THIS DOCUMENT.

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EXPECTED TIMETABLE(1)

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[REDACTED]


– ii –


[REDACTED]


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IMPORTANT NOTICE TO INVESTORS

This document is issued by us solely in connection with the [REDACTED] and

the [REDACTED] and does not constitute an offer to sell, or a solicitation of an offer

to subscribe for or buy, any security other than the [REDACTED]. This document

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You should rely only on the information contained in this document to make

your investment decision. We have not authorised anyone to provide you with

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must not be relied on by you as having been authorised by us, the Sole Sponsor,

the [REDACTED], the [REDACTED], the [REDACTED], any of the [REDACTED], any

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Page

EXPECTED TIMETABLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i

CONTENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

GLOSSARY OF TECHNICAL TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

FORWARD-LOOKING STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES . . . . . . . . . . . 60

INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED] . . . . . . . . . . . . . . 64

DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED] . . . . . . . . . . . . . . . . . . 69

CONTENTS

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CORPORATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

INDUSTRY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

REGULATORY OVERVIEW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93

HISTORY, REORGANISATION AND CORPORATE STRUCTURE . . . . . . . . . . . . . . . 152

BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 178

TRUST AND CONTRACTUAL ARRANGEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 244

CONNECTED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 261

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES . . . . . . . . . . . . . . . . . . . . . 271

RELATIONSHIP WITH CONTROLLING SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . 285

SUBSTANTIAL SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 293

SHARE CAPITAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295

FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 299

FUTURE PLANS AND [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 355

[REDACTED]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367

STRUCTURE AND CONDITIONS OF THE [REDACTED] . . . . . . . . . . . . . . . . . . . . . . . 377

HOW TO APPLY FOR [REDACTED]. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390

APPENDIX I – ACCOUNTANT’S REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I-1

APPENDIX II – UNAUDITED PRO FORMA FINANCIAL INFORMATION . . . . . II-1

APPENDIX III – SUMMARY OF THE CONSTITUTION OF OUR COMPANY

AND CAYMAN ISLANDS COMPANY LAW . . . . . . . . . . . . . . III-1

APPENDIX IV – STATUTORY AND GENERAL INFORMATION . . . . . . . . . . . . . IV-1

APPENDIX V – DOCUMENTS DELIVERED TO THE REGISTRAR OF

COMPANIES IN HONG KONG AND AVAILABLE FOR

INSPECTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . V-1

CONTENTS

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This summary aims to give you an overview of the information contained in thisdocument. As this is a summary, it does not contain all the information that may beimportant to you. You should read the entire document before you decide to invest inthe [REDACTED]. There are risks associated with an investment in the [REDACTED].Some of the particular risks associated with an investment in the [REDACTED] are setout in the section headed “Risk Factors” in this document. You should read thatsection carefully before you decide to invest in the [REDACTED].

OVERVIEW

We are the largest non-state-owned port, waterway and marine engineering company in thePRC in terms of revenue according to Frost & Sullivan. We are also currently one of the only twelvenon-state-owned enterprises in the PRC that possesses the first-grade general contractorqualification certificate granted by MOHURD for conducting port, waterway and marine engineeringbusiness in the PRC. According to Frost & Sullivan, Chinese state-owned enterprises account forover 90% of the market share of the PRC port, waterway and marine engineering industry. Weranked ninth in the whole port, waterway and marine engineering industry in the PRC and we werealso the second largest port, waterway and marine engineering company among all Chinesestate-owned and non-state-owned companies in Southeast Asia, both in terms of revenue in 2017.

We have been operating in core and specialised areas of the PRC port, waterway and marineengineering industry, primarily focusing on port infrastructure and waterway engineering. Our portinfrastructure work primarily includes wharf construction. We also conduct a small portion of otherport infrastructure work, such as breakwater and revetment construction and land yardconstruction. Our waterway engineering work primarily includes waterway dredging andimprovement and land reclamation. Throughout the years, we have gradually expanded ourbusiness to certain regions including Yangtze River Delta, Pearl River Delta, central and northernChina. In 2016, we also became one of the pioneers in the PRC to set foot in Southeast Asia byexpanding our business in Brunei and Indonesia, following China’s Belt and Road Initiative. Duringthe Track Record Period, in Southeast Asia, we had only conducted port infrastructure work and/orservices.

COMPETITIVE STRENGTHS

We believe that the following competitive strengths have enabled us to compete effectively inthe port, waterway and marine engineering industry in the PRC and Southeast Asia:

• We are the largest non-state-owned port, waterway and marine engineering company inthe PRC and second largest port, waterway and marine engineering company among allChinese state-owned and non-state-owned companies in Southeast Asia, possessingthe first-grade general contractor qualification certificate for conducting port, waterwayand marine engineering business in the PRC;

• We are well-positioned to capture opportunities in overseas markets;

• We have an experienced and high calibre management team with a proven track record;

• We are able to manage and conduct our operation in a centralised and effective mannerwith the support of stable raw material suppliers and subcontractors;

• Our customer-oriented strategy has enabled us to develop a strong customer base; and

• We have the ability to construct specialised wharfs.

FUTURE STRATEGIES

We intend to further strengthen our leading position in the port, waterway and marineengineering industry in the PRC and continue to expand our business in Southeast Asia. We planto achieve our goals by pursuing the following principal future strategies:

• Further strengthen our leading market position in the port, waterway and marineengineering industry in the PRC;

SUMMARY

– 1 –


• Continue to capture increased business opportunities in Southeast Asia from China’sBelt and Road Initiative and enhance our international reputation;

• Continue to focus on operational efficiency, enlarge our scale of operation and recruittalents; and

• Pursue strategic investment to achieve vertical business integration and become anintegrated marine engineering service provider.

BUSINESS MODEL

The following diagram illustrates our business model:

- Identifying potential projects

- Conducting evaluation and

preparing for tenders

- Determining tender prices

and submitting tenders

Completion phase

- Final inspection and

verification by

customers

- Providing warranty

during defect liability

period for one to

two years

Marketing and sales phase

- Preparing project execution

plan

- Commencing projects

Planning phase

- Commencing construction

- Procuring raw materials and

subcontracting

- Customer-oriented services

during the projects

Execution phase

OUR CORE BUSINESS SEGMENTS

We primarily engage in the provision of port and waterway engineering work and/or servicesin the PRC and Southeast Asia. During the Track Record Period and up to the Latest PracticableDate, we had completed 108 port infrastructure projects and 18 waterway engineering projects inthe PRC. As at the Latest Practicable Date, we had a total of 37 projects in progress in the PRC andSoutheast Asia, which represent contracts awarded to us but have not yet been completed, with atotal contract value of approximately RMB3,221.4 million, and 11 projects on hand, which representcontracts awarded to us but have not yet been started, with a total contract value of approximatelyRMB859.8 million.

The table below sets out our revenue by our core business segment for the periods indicated:

Year ended 31 December Four months ended 30 April

2015 2016 2017 2017 2018

RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue(Unaudited)

Port infrastructure . . 931,387 82.8 925,471 73.2 1,362,268 96.5 217,876 100.0 264,166 98.4– The PRC . . . . . 931,387 82.8 833,246 65.9 918,785 65.1 139,788 64.2 89,750 33.5– Southeast Asia. . – – 92,225 7.3 443,483 31.4 78,088 35.8 174,416 64.9

Waterwayengineering(1) . . . 193,267 17.2 338,314 26.8 49,700 3.5 – – 4,382 1.6

Total: . . . . . . . . . 1,124,654 100.0 1,263,785 100.0 1,411,968 100.0 217,876 100.0 268,548 100.0

Note:

1. During the Track Record Period, we had only conducted waterway engineering work and/or services in thePRC.

SUMMARY

– 2 –


As part of our development strategy to differentiate our competitive advantage againstlarge-scale state-owned port, waterway and marine engineering companies in the PRC, webecame one of the pioneers in the PRC to set foot in Southeast Asia by expanding our business inBrunei and Indonesia in 2016, following China’s Belt and Road Initiative. We believe that theintroduction of China’s Belt and Road Initiative has provided us with tremendous businessopportunities in the Southeast Asia’s port infrastructure market. Furthermore, by leveraging ourexisting diversified and extensive experience gained over various significant port, waterway andmarine engineering projects in the PRC and full range of construction equipment and vessels, wehave been benefited from the increasing port, waterway and marine engineering projects in theSoutheast Asian countries carried out by our existing reputable and loyal customers, which aremainly the major Chinese state-owned enterprises and public and private companies, and at thesame time, we can also gain new local customers in the Southeast Asian markets.

Our revenue derived from our business operation in Southeast Asia increased rapidly duringthe Track Record Period due to our successful implementation of the development strategy. Inaddition, recognition of our revenue is largely depending on the progress/phase of our projects. Assuch, our revenue recognised in the PRC or Southeast Asia for a particular period of time during theTrack Record Period fluctuated depending on the amount of work and/or servicesconducted/completed by us under certain phases of our projects in these regions during aparticular period of time. The table below sets out our revenue by geographic location for theperiods indicated:


2015 2016 2017 2017 2018

RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue(Unaudited)

The PRC . . . . . . . 1,124,654 100.0 1,171,560 92.7 968,485 68.6 139,788 64.2 94,132 35.1Southeast Asia . . . . – – 92,225 7.3 443,483 31.4 78,088 35.8 174,416 64.9

– Brunei . . . . . . – – 92,225 7.3 384,957 27.3 71,184 32.7 162,669 60.5– Indonesia . . . . – – – – 58,526 4.1 6,904 3.1 11,747 4.4

Total: . . . . . . . . . 1,124,654 100.0 1,263,785 100.0 1,411,968 100.0 217,876 100.0 268,548 100.0

We generally recognise our revenue from the provision of our port and waterwayengineering work and/or services upon completion of certain phases of a contract. We typicallysubmit work-in-progress applications to our customers on a monthly basis, which generallyinclude (i) our estimated value of work and/or services completed during the month betweenour previous and current monthly cut-off dates; and (ii) proposed payment amount to be settledby our customers based on such estimated value of work and/or services completed andcalculated at certain percentage in accordance with the stipulated terms and conditions of therespective contracts. The monthly cut-off dates of such work-in-progress applications varyfrom project to project and are also typically specified in the contracts. Typically, theauthorised personnel employed by our customers will review our work-in-progressapplications and certify the value of the work and/or service completed by us in such month.Once our customers agree with our work-in-progress applications, they will arrange paymentin accordance with the payment amount in our work-in-progress applications within a specifiedperiod of time according to the terms specified in the contracts.

Our revenue increased from approximately RMB1,124.7 million for the year ended 31December 2015 to approximately RMB1,263.8 million for the year ended 31 December 2016,and further increased to approximately RMB1,412 million for the year ended 31 December2017. The increase in our revenue for the year ended 31 December 2016 was primarily due tothe increase in revenue of our waterway engineering business segment in the PRC due to usrecognising revenue for a large waterway engineering project, and our new businessexpansion in Brunei. The increases in our revenue for the year ended 31 December 2017 andthe four months ended 30 April 2018 as compared to the same for the four months ended 30April 2017 were primarily due to the increases in revenue of our port infrastructure business in

SUMMARY

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Brunei and Indonesia due to our expansion in Southeast Asia. Our Directors confirmed that wedid not have any loss-making projects during the Track Record Period and up to the LatestPracticable Date.

During the Track Record Period, the ageing of our trade and retention receivables wasrelatively long, primarily as a result of our relatively longer receivable collection period due tous having a diversified group of customers, the majority of which are subsidiaries or affiliatesof Chinese state-owned enterprises and public and/or private companies which are also thekey players in the PRC port, waterway and marine engineering industry. These customerstypically have solid background and financial conditions, good reputation, credibility andpayment records and did not encounter any financial difficulties resulting in failed paymentobligations. As confirmed by Frost & Sullivan, it is the industrial norm for non-state-ownedcompanies engaged in our industry to have relatively longer receivable collection period. Inorder to increase our future receivable collection and reduce ageing, we have implementedreceivable collection internal control policy since December 2017. For more details of ourtrade and retention receivables, please refer to the section headed “Financial Information –Certain items of combined statements of financial position – Trade and other receivables” inthis document.

OUR TRUST ARRANGEMENT FOR BENTENG BRUNEI

We incorporated Benteng Brunei as a limited liability company on 19 January 2016.Pursuant to the trust arrangement entered into by relevant parties in relation to BentengBrunei, Benteng Brunei is currently held as to 99% by Maritime Vansun and 1% by MaritimeVansun via PSB, which is our local partner in Brunei, as nominee. For more details of thecorporation information and internal reorganisation of our Benteng Brunei and our trustarrangement for Benteng Brunei, please refer to the sections headed “History, Reorganisationand Corporate Structure – Expansion of business to Brunei” and “– B. OffshoreReorganisation” and “Trust and Contractual Arrangements – Our trust arrangement forBenteng Brunei” in this document.

OUR CONTRACTUAL ARRANGEMENTS FOR BENTENG INDONESIA

We incorporated Benteng Indonesia as a limited liability company on 16 September 2016and obtained its legal entity status on 21 September 2016. Pursuant to the ContractualArrangements entered into by relevant parties in relation to Benteng Indonesia, BentengIndonesia is currently held as to 67% by Engineering Prosper and 33% by PTPB, which is ourlocal partner in Indonesia. The following diagram illustrates the structure of our ContractualArrangements for Benteng Indonesia:

67% 33%

direct legal and beneficial ownership in the equity interest

contractual relationship

Third Harbor Construction

(prior to our Offshore

Reorganisation)/Engineering

Prosper (after our

Offshore Reorganisation)

PTPB

Benteng Indonesia

(2) Loan Agreements

(1) Cooperation Agreements

(3) Pledge of Shares Agreements

(4) Assignment of Rights to Dividends Agreements

(5) Option Agreements

(6) Power of Attorney to Sell

(7) Power of Attorney to Vote

SUMMARY

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For more details of the corporation information and internal reorganisation of our BentengIndonesia and our Contractual Arrangements for Benteng Indonesia, please refer to thesections headed “History, Reorganisation and Corporate Structure – Expansion of business toIndonesia” and “– B. Offshore Reorganisation” and “Trust and Contractual Arrangements –Our Contractual Arrangements for Benteng Indonesia” in this document.

GROSS PROFIT AND GROSS PROFIT MARGIN

The following table sets out the gross profit and gross profit margin by our core businesssegment for the periods indicated:


2015 2016 2017 2017 2018

Grossprofit

Grossprofit

margin

Grossprofit/(loss)

Grossprofit/(loss)

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin

RMB’000 % RMB’000 % RMB’000 % RMB’000 % RMB’000 %(Unaudited)

Port infrastructure . . 105,833 11.4 114,778 12.4 155,547 11.4 27,885 12.8 42,055 15.9– The PRC . . . . . 105,833 11.4 116,458 14.0 90,010 9.8 15,401 11.0 12,307 13.7– Southeast Asia. . – – (1,680) (1.8) 65,537 14.8 12,484 16.0 29,748 17.1

Waterwayengineering(1) . . . 14,109 7.3 18,261 5.4 3,590 7.2 – – 232 5.3

Total: . . . . . . . . . 119,942 10.7 133,039 10.5 159,137 11.3 27,885 12.8 42,287 15.7

Note:


The following table sets out the gross profit and gross profit margin by geographic location forthe periods indicated:


2015 2016 2017 2017 2018

Grossprofit

Grossprofit

margin

Grossprofit/(loss)

Grossprofit/(loss)

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

marginGrossprofit

Grossprofit

margin

RMB’000 % RMB’000 % RMB’000 % RMB’000 % RMB’000 %

(Unaudited)

The PRC . . . . . . . 119,942 10.7 134,719 11.5 93,600 9.7 15,401 11.0 12,539 13.3Southeast Asia . . . . – – (1,680) (1.8) 65,537 14.8 12,484 16.0 29,748 17.1

– Brunei . . . . . . – – (1,680) (1.8) 46,932 12.2 11,458 16.1 26,096 16.0– Indonesia . . . . – – – – 18,605 31.8 1,026 14.9 3,652 31.1

Total . . . . . . . . . 119,942 10.7 133,039 10.5 159,137 11.3 27,885 12.8 42,287 15.7

For the three years ended 31 December 2015, 2016 and 2017 and the four months ended 30April 2018, our gross profit was approximately RMB119.9 million, RMB133 million, RMB159.1million and RMB42.3 million, respectively, and our gross profit margin was approximately 10.7%,

SUMMARY

– 5 –


10.5%, 11.3% and 15.7%, respectively. For our port and waterway engineering projects, wetypically negotiate the contract unit price of each of our work and/or service items to be providedunder a project, which are agreed by our customers and specified in the contracts. As such, we mayrecord different gross profit margin for projects in different financial year/period. Nevertheless, wewere able to achieve a general increase in our overall gross profit and gross profit margin during theTrack Record Period.

The increase in our gross profit for the year ended 31 December 2016 was primarily due to theincrease in gross profit of our port infrastructure business segment in the PRC. We also recordedhigher gross profit margin for such business segment in the PRC for the year ended 31 December2016. Nevertheless, such increases were partially offset by our gross loss and gross loss margin ofour business operation in Brunei for the same period, as we incurred higher initial costs incommencing our port infrastructure projects in Brunei and conducted certain work that generallyhad a relatively lower gross profit margin. The increase in our gross profit for the year ended 31December 2016 was also partially due to the increase in gross profit of our waterway engineeringbusiness segment in the PRC for the same period as a result of us completing a large waterwayengineering project.

The increases in our gross profit and gross profit margin for the year ended 31 December 2017and the four months ended 30 April 2018 as compared to the same for the four months ended 30April 2017 were primarily due to us realising gross profit and gross profit margin of our portinfrastructure business in Southeast Asia as a result of our new business expansion. Suchincreases were partially offset by the decreases in gross profit and gross profit margin of our portinfrastructure business segment in the PRC. For more details of our gross profit and gross profitmargins, please refer to the section headed “Financial Information – Period to period comparisonof results of operations” in this document.

OUR CUSTOMERS

Our customers mainly comprise Chinese state-owned enterprises and public and privatecompanies, which are typically project owners and/or main contractors. Our customers typicallyengage us to conduct port and waterway engineering work and/or services on a project-by-projectbasis and generally settle payment with us on a monthly basis based on our actual quantities ofwork done and according to the terms specified in the contracts. Our customers typically withholdapproximately 5% to 10% of the total projects’ contract value as retention money, which will bereleased to us upon expiry of the defect liability period that normally lasts for one to two years. Forthe three years ended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2018,our revenue generated from our top five customers amounted to approximately RMB574.1 million,RMB649.4 million, RMB931.2 million and RMB179.6 million, representing approximately 51%,51.4%, 65.9% and 66.9% of our total revenue for the same period, respectively.

OUR PROCUREMENT AND SUBCONTRACTING

We purchase raw materials, mainly including cement, sand and rock, steel, tube piles andothers, according to our project progress. We also subcontract part of our raw materialprocurement, leasing of our vessels and construction equipment, such as floating pile barge,installation vessel and dredger, and various labour intensive construction and ancillary work, suchas concrete pouring and assembling reinforcement, to third-party subcontractors depends on ourproject needs. For the three years ended 31 December 2015, 2016 and 2017 and the four monthsended 30 April 2018, our purchases from our top five raw material suppliers representedapproximately 43.7%, 69%, 52.4% and 65.6% of our total cost of raw materials and consumablesused for the same period, respectively, and our subcontracting costs to our top five subcontractorsrepresented approximately 42.6%, 35.9%, 61.6% and 67.4% of our total subcontracting costs forthe same period, respectively.

[REDACTED] INVESTMENT

On 11 April 2018, our Company, HuaZi Holding, Ye Wang Zhou Holding, HZ&BT DevelopmentHolding, Mr. Wang, the Five Individual Shareholders, the 14 Individual Shareholders and Worldlinkentered into the Subscription Agreement, pursuant to which Worldlink agreed to subscribe for180,000 new Shares, representing [REDACTED]% of the then total issued share capital of our

SUMMARY

– 6 –


Company as enlarged by the subscription, at a total subscription price of US$9,584,744.54(equivalent to approximately RMB60,000,000). Upon completion of the Subscription Agreement,our Company was owned as to approximately [REDACTED]%, [REDACTED]%, [REDACTED]%and [REDACTED]% by HuaZi Holding, Ye Wang Zhou Holding, HZ&BT Development Holding andWorldlink, respectively. For further details, please refer to the section headed “History,Reorganisation and Corporate Structure – Reorganisation – B. Offshore Reorganisation –[REDACTED] Investment by Worldlink” in this document.

SHAREHOLDER INFORMATION

By virtue of the Acting-in-concert Confirmation, each of Mr. Wang, Mr. Ye Kangshun (葉康舜),Mr. Wang Xiuchun (王秀春), Ms. Zhou Meng (周萌), Mr. Wang Shiqin (王士勤), Mr. Wang Likai (王利凱), HuaZi Holding and Ye Wang Zhou Holding is our Controlling Shareholder. For further details,please refer to the sections headed “History, Reorganisation and Corporate Structure – Acting-in-concert Confirmation” and “Substantial Shareholders” in this document. Immediately uponcompletion of the [REDACTED] and the [REDACTED] (assuming the [REDACTED] is notexercised and without taking into account any Shares which may be issued pursuant to the exerciseof any options which may be granted under the Share Option Scheme), our ControllingShareholders will own in total approximately [REDACTED]% of the issued share capital of ourCompany.

As at the Latest Practicable Date, Watts Gallop was owned as to 56% by Mr. Wang andtherefore is an associate of Mr. Wang within the meaning of the Listing Rules. Our Directors are ofthe view that there is a clear delineation between our Group’s business and Watts Gallop Group’sbusiness, and that none of the business of Watts Gallop Group would directly or indirectly competewith our business after [REDACTED]. For further details, please refer to the section headed“Relationship with Controlling Shareholders – Business delineation” in this document. During theTrack Record Period, we had procured various raw materials from Watts Gallop Group, and weexpect to continue such transactions with Watts Gallop Group after [REDACTED], which willconstitute non-exempt continuing connected transactions of our Company under the Listing Rules.For further details, please refer to the section headed “Connected Transactions” in this document.

RISK FACTORS

Our Directors believe that there are certain risks involved in our operations. Many of theserisks are beyond our control. A detailed discussion of the risk factors that we believe are particularlyrelevant to us is set out in the section headed “Risk Factors” in this document. You should read the“Risk Factors” section before you decide to invest in the [REDACTED]. Set out below are some ofthe major risks that may materially and adversely affect us:

• Our performance is dependent on the general economic conditions and policies of theport, waterway and marine engineering industry in the PRC, especially the policies onpublic spending on transportation infrastructure projects;

• Our customers pay us by way of progress payments and require performance depositand retention money, and any delay in progress payments or release of performancedeposit and retention money may affect our working capital and cash flow;

• Our business operates under various permits, licences and/or qualifications and the lossof or failure to obtain or renew any or all of these permits or licences may materially andadversely affect our business, results of operations and financial condition;

• Our future gross profit and gross profit margins largely depend on our projects on handand our ability to secure future sizeable and profitable port infrastructure and waterwayengineering projects, and failure to secure these projects may materially and adverselyaffect our business, results of operations and financial condition; and

• Geopolitical risks may materially and adversely affect our business in countries wherewe operate, especially the Southeast Asian countries.

SUMMARY HISTORICAL FINANCIAL INFORMATION

The tables below present the summaries of selected combined financial information of ourGroup for the Track Record Period, which are derived from, and should be read in conjunction withour financial information, including the notes thereto, set out in the accountant’s report in AppendixI to this document.

SUMMARY

– 7 –


Summary of combined statements of comprehensive income

Year ended 31 DecemberFour months ended

30 April

2015 2016 2017 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000 RMB’000

(Unaudited)

Revenue . . . . . . . . . . . . . . . 1,124,654 1,263,785 1,411,968 217,876 268,548Cost of sales. . . . . . . . . . . . (1,004,712) (1,130,746) (1,252,831) (189,991) (226,261)Gross profit. . . . . . . . . . . . . 119,942 133,039 159,137 27,885 42,287Profit before income tax . . . 85,156 100,622 113,286 16,650 29,959

Profit for the year/period . 63,751 74,963 87,274 12,759 24,614

Total comprehensiveincome for theyear/period attributableto owners of ourCompany . . . . . . . . . . . . 63,751 74,845 87,101 12,698 23,170

Summary of current assets and liabilities

As at 31 DecemberAs at

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Current assets . . . . . . . . . . . . . . . . 1,213,040 1,310,068 1,565,920 1,523,392Current liabilities. . . . . . . . . . . . . . . 1,102,205 1,090,831 971,229 907,388

Net current assets . . . . . . . . . . . . 110,835 219,237 594,691 616,004

Summary of combined cash flows information


30 April

2015 2016 2017 2017 2018


(Unaudited)

Net cash generated from/(usedin) operating activities . . . . . . 131,190 51,835 379 (13,793) 5,929

Net cash (used in)/generatedfrom investing activities . . . . . (127,774) (44,975) 3,419 18,837 9,467

Net cash (used in)/generate fromfinancing activities . . . . . . . . . (3,416) (827) 112,519 – 131,863

Net increase in cash and cashequivalents . . . . . . . . . . . . . – 6,033 116,317 5,044 147,259

Cash and cash equivalents atbeginning of year/period . . . . . – – 6,193 6,193 122,264

Exchange gains/(losses) on cashand cash equivalents . . . . . . . – 160 (246) (194) 149

Cash and cash equivalents atend of year/period . . . . . . . . – 6,193 122,264 11,043 269,672

SUMMARY

– 8 –


Key financial ratios

Year ended/As at 31 December

Fourmonths

ended/Asat 30 April

2015 2016 2017 2018

Gross profit margin . . . . . . . . . . . . . 10.7% 10.5% 11.3% 15.7%Net profit margin . . . . . . . . . . . . . . . 5.7% 5.9% 6.2% 9.2%Return on equity . . . . . . . . . . . . . . . 21.2% 20.3% 17.2% N/AReturn on assets . . . . . . . . . . . . . . 4.2% 4.8% 5.2% N/ACurrent ratio . . . . . . . . . . . . . . . . . . 1.1 1.2 1.6 1.7

For more details of our financial ratios, please refer to the section headed “FinancialInformation – Financial ratios” in this document.

RECENT DEVELOPMENT

After our Track Record Period, as part of our Reorganisation, (i) Royal Karry entered into theShare Transfer Agreement with Third Harbor Construction and Worldlink on 1 May 2018 to acquireShanghai Shanyu at a consideration of approximately RMB122.4 million; and (ii) Third HarborConstruction and Third Harbor Maritime entered into the Novation Agreement on 6 July 2018 tonovate and transfer the Third Harbor Construction Contract Assets, the Third Harbor ConstructionTrade Receivables and Payables and related rights and obligations from Third Harbor Constructionto Third Harbor Maritime at a consideration of approximately RMB155 million with the finalsettlement amount of approximately RMB39.3 million. For more details, please refer to the sectionheaded “Financial Information – Liquidity and capital resources – Cash flow – Cash flows (usedin)/generated from investing activities” and “– Recent development” in and Note 1.2 to ouraccountant’s report in Appendix I to this document.

Upon completion of our Reorganisation, a total amount of approximately RMB518.8 millionwas recognised as deemed distribution to shareholders. For illustration purpose only, we set outbelow the key balance sheet items as at 30 April 2018 as if we completed the Reorganisation andsettled the final payment with Third Harbor Construction under the Novation Agreement by 30 April2018:

As at 30 April2018

AssumingReorganisation was

completed and wehad settled the finalpayment with Third

HarborConstruction under

the NovationAgreement as at 30

April 2018

RMB’000 RMB’000

Amount due from shareholders(1) . . . . . . . . . . . . . 296.7 nilCash and cash equivalents . . . . . . . . . . . . . . . . . . 269.7 108Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 762.5 243.7

Note:

1. As at the Latest Practicable Date, we had settled all of our amounts due from shareholders. For moredetails, please refer to the section headed “Financial Information – Certain items of combinedstatements of financial position – Amounts due from shareholders” in this document.

SUMMARY

– 9 –


As far as we are aware, both of the port, waterway and marine engineering industries in

the PRC and Southeast Asia remained stable after the Track Record Period. We did not

experience any significant drop in revenue or increase in cost of sales or other costs

subsequent to the Track Record Period up to the Latest Practicable Date as there were no

significant changes to the general business model of our Group and economic environment.

As at the Latest Practicable Date, we had (i) 37 projects in progress with total contract

value of approximately RMB3,221.4 million and the total expected revenue contribution from

these projects in progress for the eight months ending 31 December 2018 and the year ending

31 December 2019 will be approximately RMB903.9 million and RMB349.4 million,

respectively; and (ii) 11 projects on hands with total contract value of approximately RMB859.8

million and the expected revenue contribution from these projects on hand for the eight months

ending 31 December 2018 and the year ending 31 December 2019 will be approximately

RMB313.6 million and RMB468 million, respectively.

NO MATERIAL ADVERSE CHANGE

Save as disclosed in the above paragraph headed “Recent Development”, our Directors

confirm that, up to the date of this document, there had been no material adverse change in our

financial or trading position since 30 April 2018 and there was no event since 30 April 2018

which would materially affect the information shown in the accountant’s report in Appendix I to

this document.

DIVIDEND

During the Track Record Period and up to the Latest Practicable Date, we had not

distributed any dividends to the then equity holders of our Group. Going forward, we may

distribute dividends depend on our results of operations, cash flows, financial condition,

statutory and regulatory restrictions on the payment of dividends by us, future prospects, and

other facts that we may consider relevant. Please also refer to the section headed “Financial

Information – Dividend” in this document for more details.

THE [REDACTED]

The [REDACTED] consists of:

• the offer of initially [REDACTED] for subscription by the public in Hong Kong,

referred to in this document as the [REDACTED]; and

• the offer of initially [REDACTED], including to professional and institutional and

other investors, referred to in this document as the [REDACTED].

SUMMARY

– 10 –


KEY [REDACTED] STATISTICS(1)

Based on an[REDACTED] of

HK$[REDACTED] per[REDACTED]

Based on an[REDACTED] of

HK$[REDACTED] per[REDACTED]

Market capitalisation of ourShares(2) . . . . . . . . . . . . .

HK$[REDACTED] HK$[REDACTED]

Pro forma adjusted nettangible asset value perShare(3) . . . . . . . . . . . . . .

HK$[REDACTED] HK$[REDACTED]

Notes:

(1) All statistics in this table assume the [REDACTED] is not exercised.

(2) The calculation of market capitalisation is based on [REDACTED] Shares expected to be in issueimmediately upon completion of the [REDACTED] (assuming the [REDACTED] is not exercised at all).

(3) The pro forma adjusted net tangible asset value per Share is arrived at after the adjustments referred toin the section headed “Unaudited Pro Forma Financial Information – A. Unaudited pro forma statementof adjusted net tangible assets” in Appendix II to this document and on the basis of [REDACTED] Sharesissued at the respective indicative [REDACTED] of HK$[REDACTED] per [REDACTED] andHK$[REDACTED] per [REDACTED] following the [REDACTED].

[REDACTED]

For the year ended 31 December 2017 and the four months ended 30 April 2018, we incurred[REDACTED] of approximately RMB4.6 million and RMB3.4 million, respectively, which werecharged to our combined statements of comprehensive income for the same period. We expect tofurther incur [REDACTED] (including [REDACTED] commissions) of approximatelyHK$[REDACTED] million (based on mid-point of our indicative price range for the [REDACTED]and assuming that the [REDACTED] is not exercised and without taking into account anydiscretionary incentive fees, if applicable) by the completion of the [REDACTED], of which anestimated amount of approximately HK$[REDACTED] million will be charged to our consolidatedstatements of comprehensive income for the year ending 31 December 2018 and an estimatedamount of approximately HK$[REDACTED] million will be capitalised. We do not expect these[REDACTED] to have a material impact on our business and results of operations for the yearending 31 December 2018.

[REDACTED]

We estimate that the aggregate [REDACTED] of the [REDACTED] (after deducting[REDACTED] fees and estimated expenses payable by us in connection with the [REDACTED],and assuming an [REDACTED] of HK$[REDACTED] per [REDACTED], being the mid-point of theindicative [REDACTED] range of HK$[REDACTED] to HK$[REDACTED] per [REDACTED]) will beapproximately HK$[REDACTED] million, assuming that the [REDACTED] is not exercised. Wecurrently intend to apply such [REDACTED] in the following manner:

• Approximately [REDACTED]%, or HK$[REDACTED] million of the [REDACTED] fromthe [REDACTED] to our Company, is expected to be used primarily to fund our capitalneeds and cash flow under our existing projects in the PRC and Southeast Asia, as weare willing to accept longer receivable collection period required for these two projects inorder to gain more profit although we may encounter mismatch of our working capitalneeded for these projects;

• Approximately [REDACTED]%, or HK$[REDACTED] million of the [REDACTED] fromthe [REDACTED] to our Company, is expected to be used primarily for purchasing newvessels and construction equipment to undertake more port infrastructure projects aswell as to enhance the overall efficiency and profit margin of our wharf construction andwaterway engineering projects;

SUMMARY

– 11 –


• Approximately [REDACTED]%, or HK$[REDACTED] million of the [REDACTED] fromthe [REDACTED] to our Company, is expected to be used primarily for the recruitment ofadditional high quality comprehensive talent equipped with extensive port constructionknowledge and working experience for both of our operation in the PRC and SoutheastAsia. Further, we also plan to establish a management centre in Hong Kong to overseeour overseas projects;

• Approximately [REDACTED]%, or HK$[REDACTED] million of the [REDACTED] fromthe [REDACTED] to our Company, is expected to be used primarily for strategic equityinvestment into small to medium-sized design institute or research and developmentcentre focusing on port, waterway and marine engineering industry to achieve verticalbusiness integration and enhance our integrated service capabilities (with reference tocertain similar equity investment conducted by listed companies as our basis). Webelieve that such strategic investment will enable us to obtain the first-mover advantageto get involved in the potential projects at much earlier stage, which in turn, will help usto enhance our ability to win projects and hence, improve our revenue and profitability.Further, such investment strategy will also help us to enhance our design, research anddevelopment capability for port infrastructure engineering so that we have the capabilityto execute all the activities from design, procurement, construction to handover of theprojects to our clients; and

• Approximately [REDACTED]%, or HK$[REDACTED] million of the [REDACTED] fromthe [REDACTED] to our Company, is expected to be used primarily to fund our workingcapital and for general corporate purposes.

Please refer to the section headed “Future Plans and [REDACTED]” in this document forfurther information on our use of [REDACTED] of the [REDACTED].

REASONS FOR [REDACTED]

Our Directors believe that the [REDACTED] on the Stock Exchange will benefit our Group asit will help us to (i) enhance the profile of our Group and enable us to be considered more favourablyby our customers, which mainly comprise Chinese state-owned enterprises and public and privatecompanies, when tendering for contracts, given that a listed company is subject to ongoingregulatory compliance for announcements, financial disclosure and corporate governance; (ii) gainaccess to capital market funding to fund our capital needs and strengthen our cash flow, which inturn, increase our competitiveness to undertake more large projects as project owners oftenrequire their contractors/subcontractors to have the ability to bear more upfront costs, such asputting down more performance deposits or bearing more upfront construction costs, and acceptlonger receivable collection period; and (iii) control our debt financing costs and strengthen ourfinancial position as the [REDACTED] from [REDACTED] will provide our Group with the necessaryfunds and resources and reduce our potential reliance on bank borrowings. Please refer to thesection headed “Future Plans and [REDACTED]” in this document for more details of our reasoningfor [REDACTED].

SUMMARY

– 12 –


In this document, unless the context otherwise requires, the following terms

shall have the meanings set out below.

“Acting-in-concert

Confirmation”

the acting-in-concert confirmation dated 22 August 2004

entered into among Mr. Wang, Mr. Ye Kangshun (葉康舜),

Mr. Wang Xiuchun (王秀春), Ms. Zhou Meng (周萌) and Mr.

Wang Shiqin (王士勤) (as supplemented by another acting-

in-concert confirmation dated 25 May 2018 entered into

among the same parties and Mr. Wang Likai (王利凱)). For

further details, please refer to the section headed “History,

Reorganisation and Corporate Structure – Acting-in-

concert Confirmation” in this document

“affiliate(s)” any other person, directly or indirectly, controlling or

controlled by or under direct or indirect common control

with such specified person

[REDACTED]

“Articles” or “Articles of

Association”

the amended and restated articles of association of our

Company conditionally adopted on 19 October 2018 and

which will come into effect upon [REDACTED], a summary

of which is set out in the section headed “Summary of the

Constitution of our Company and Cayman Islands

Company Law – Articles of Association” in Appendix III to

this document

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

“Benteng Brunei” Pahaytc & Benteng JV Sdn Bhd, a company incorporated

under the laws of Brunei with limited liability on 19 January

2016, which is currently held as to 99% by Maritime Vansun

and 1% by Maritime Vansun via PSB, an Independent Third

Party, as nominee. For further details, please refer to the

section headed “Trust and Contractual Arrangements – Our

trust arrangement for Benteng Brunei” in this document

DEFINITIONS

– 13 –


“Benteng Indonesia” PT. Shanghai Third Harbor Benteng Construction andEngineering, a company incorporated under the laws ofIndonesia on 16 September 2016 and obtained its legalentity status on 21 September 2016, which is currently heldas to 67% by Engineering Prosper and 33% by PTPB underthe Contractual Arrangements. For further details, pleaserefer to the section headed “Trust and ContractualArrangements – Our Contractual Arrangements forBenteng Indonesia” in this document

“BN$” or “BND” Brunei Dollars, the lawful currency of Brunei

“Board” the board of Directors

“Brunei Legal Advisers” Ridzlan Lim Advocates & Solicitors, the legal advisers,advocates and solicitors to our Company as to Brunei law inconnection with the [REDACTED]

“Business and Asset TransferAgreements”

the (i) business and relevant asset restructuring agreementin respect of marine engineering (關於海洋工程業務及相關資產之重組協議書) and (ii) asset transfer agreement (資產轉讓協議), both dated 30 November 2017, entered intobetween Third Harbor Construction (as transferor) andThird Harbor Maritime (as transferee), pursuant to which,certain business and assets of Third Harbor Constructionwere transferred to Third Harbor Maritime

“Business Day” a day on which the Stock Exchange is open for the businessof [REDACTED]

“BVI” the British Virgin Islands

“CAGR” Compound annual growth rate

“Capital Injection Agreement” the agreement dated 22 December 2017 entered intoamong Third Harbor Construction, Worldlink and ShanghaiShanyu, pursuant to which Worldlink agreed to acquire1.9928% equity interest in Shanghai Shanyu by way ofcapital injection of RMB2,440,000

[REDACTED]

DEFINITIONS

– 14 –


[REDACTED]

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

“Companies Law” or “CaymanCompanies Law”

the Companies Law, Cap. 22 (Law 3 of 1961, asconsolidated and revised) of the Cayman Islands

“Companies Ordinance” the Companies Ordinance (Chapter 622 of the Laws ofHong Kong), as amended, supplemented or otherwisemodified from time to time

“Companies (Winding Up andMiscellaneous Provisions)Ordinance”

the Companies (Winding Up and Miscellaneous Provisions)Ordinance, Chapter 32 of the Laws of Hong Kong, asamended, supplemented or otherwise modified from time totime

“Company” or “our Company” Watts International Maritime Engineering Limited (華滋國際海洋工程有限公司), an exempted company incorporatedunder the laws of the Cayman Islands with limited liabilityon 20 December 2017

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

“Contractual Arrangements” a series of contractual arrangements entered into betweenPTPB and Third Harbor Construction/Engineering Prosperin relation to the 33% shareholding interest in BentengIndonesia, details of which are set out in the section headed“Trust and Contractual Arrangements – Our ContractualArrangements for Benteng Indonesia” in this document

DEFINITIONS

– 15 –


“Controlling Shareholder(s)” has the meaning ascribed to it under the Listing Rules andin the context of our Company refers to Mr. Wang, Mr. YeKangshun (葉康舜), Mr. Wang Xiuchun (王秀春), Ms. ZhouMeng (周萌), Mr. Wang Shiqin (王士勤), Mr. Wang Likai (王利凱), HuaZi Holding and Ye Wang Zhou Holding

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

“CSRC” China Securities Regulatory Commission (中國證券監督管理委員會)

“Deed of Indemnity” a deed of indemnity dated 22 October 2018 entered intobetween our Controlling Shareholders and our Company(for ourselves and as trustee for and on behalf of oursubsidiaries), particulars of which are set out in the sectionheaded “Statutory and General Information – F. OtherInformation – 1. Tax and other indemnities” in Appendix IVto this document

“Deed of Non-competition” a deed of non-competition deed dated 22 October 2018entered into between our Controlling Shareholders and ourCompany (for ourselves and as trustee for and on behalf ofour subsidiaries), particulars of which are set out in thesection headed “Relationship with ControllingShareholders – Non-competition undertakings” in thisdocument

“Director(s)” director(s) of our Company

“EIT” enterprise income tax in PRC (中華人民共和國企業所得稅)

“EIT Law” Enterprise Income Tax Law of the PRC (中華人民共和國企業所得稅法) promulgated by the National People’sCongress on 16 March 2007 and became effective on 1January 2008. Amended on 24 February 2017

“Engineering Prosper” Engineering Prosper Limited, a BVI business companyincorporated under the laws of the BVI with limited liabilityon 5 January 2018 and is a direct wholly-owned subsidiaryof our Company

“GDP” gross domestic product

DEFINITIONS

– 16 –


[REDACTED]

“Group”, “our Group”, “we”,“our” or “us”

our Company and its subsidiaries or, where the context sorequires, in respect of the period before our Companybecame the holding company of its present subsidiaries,the businesses operated by such subsidiaries or theirpredecessors (as the case may be)

“HK$”, “HK dollars” and “cents” Hong Kong dollars and cents respectively, the lawfulcurrency of Hong Kong

“HKAS” Hong Kong Accounting Standards

“HKFRSs” Hong Kong Financial Reporting Standards issued byHKICPA

“HKICPA” Hong Kong Institute of Certified Public Accountants

“HKSCC” Hong Kong Securities Clearing Company Limited, a wholly-owned subsidiary of Hong Kong Exchanges and ClearingLimited

“HKSCC Nominees” HKSCC Nominees Limited, a wholly-owned subsidiary ofHKSCC

“Hong Kong”, “HKSAR” or “HK” the Hong Kong Special Administrative Region of the PRC

[REDACTED]

“HuaZi Holding” HuaZi Holding Limited, a BVI business companyincorporated under the laws of the BVI with limited liabilityon 8 December 2017, which is wholly owned by Mr. Wangand a Controlling Shareholder

“HuaZi Rosely” HuaZi Rosely Limited, a BVI business companyincorporated under the laws of the BVI with limited liabilityon 5 January 2018 and is a direct wholly-owned subsidiaryof our Company

DEFINITIONS

– 17 –


“HZ&BT Development Holding” HZ&BT Development Holding Limited, a BVI businesscompany incorporated under the laws of the BVI withlimited liability on 8 December 2017, which is owned as to15.71%, 15.70%, 15.70%, 10.60%, 8.08%, 7.85%, 5.34%,5.34%, 3.92%, 3.92%, 1.96%, 1.96%, 1.96% and 1.96% byMr. Li Hongwei (李紅衛), Mr. Li Weifei (李為飛), Mr. HuangGuanming (黃關明), Mr. Tang Jinxin (湯金鑫), Mr. Pan Xinfa(潘新法), Ms. Zhu Weier (朱衛兒), Mr. Shen Jianli (沈建力),Mr. Jin Yuhuan (金玉煥), Mr. Yan Xinsheng (閆新生), Mr. LuYang (魯楊), Ms. Wan Yun (萬雲), Ms. Zhu Qiulian (朱秋蓮),Mr. Xu Mingsong (徐明松) and Mr. Chen Yan (陳岩),respectively, and is a substantial shareholder

“IDR” Indonesian rupiah, the lawful currency of Indonesia

“Independent Third Party(ies)” an individual(s) or a company(ies) who or which/are notconnected person(s) of our Company within the meaning ofthe Listing Rules

“Indonesian Legal Advisers” Hutabarat Halim & Rekan, the legal advisers of ourCompany as to Indonesian law in connection with the[REDACTED]

“Indonesian Shareholders” Mr. Koentjahro Widjaja and Mr. Iwan Biyanto, togetherthrough PTPB, as the registered holder of 33%shareholding interest in PTPB, and an “IndonesianShareholder” shall be construed accordingly depending onthe context

“Industry Expert” or “Frost &Sullivan”

Frost & Sullivan (Beijing) Inc., Shanghai Branch Co.

[REDACTED]

DEFINITIONS

– 18 –


[REDACTED]

“Latest Practicable Date” [REDACTED], being the latest practicable date for thepurpose of ascertaining certain information contained inthis document prior to its publication

[REDACTED]

“Listing Rules” the Rules Governing the Listing of Securities on The StockExchange of Hong Kong Limited, as amended,supplemented or otherwise modified from time to time

“M&A” mergers and acquisitions

“M&A Rules” “Provisions Regarding Mergers and Acquisitions ofDomestic Enterprises by Foreign Investors” (《關於外國投資者併購境內企業的規定》), which was jointly issued byMOFCOM, SASAC, SAT, CSRC, SAIC and SAFE, whichbecame effective on 8 September 2006 and was revised on22 June 2009

“Main Board” the stock exchange (excluding the option market) operatedby the Stock Exchange which is independent from andoperated in parallel with the GEM of the Stock Exchange

“Maritime Vansun” Maritime Vansun Limited, a BVI business companyincorporated under the laws of the BVI with limited liabilityon 5 January 2018 and is a direct wholly-owned subsidiaryof our Company

DEFINITIONS

– 19 –


“Memorandum of Association”or “Memorandum”

the amended and restated memorandum of association ofour Company, adopted on 19 October 2018 and a summaryof which is set out in the section headed “Summary of theConstitution of our Company and Cayman IslandsCompany Law” in Appendix III to this document

“MOFCOM” the Ministry of Commerce of the PRC (中華人民共和國商務部)

“MOHURD” the Ministry of Housing and Urban-Rural Development ofthe PRC (中華人民共和國住房和城鄉建設部)

“Mr. Wang” or “Mr. WangShizhong (王士忠)”

Mr. Wang Shizhong (王士忠), the chairman of our Board, anexecutive Director and a Controlling Shareholder

“Novation” the novation of the rights, interests and/or liabilities of theThird Harbor Construction Contract Assets, the ThirdHarbor Construction Trade Receivables and Payables andrelated rights and obligations, from Third HarborConstruction to Third Harbor Maritime pursuant to theNovation Agreement

“Novation Agreement” the supplemental agreement to the Business and AssetTransfer Agreements entered into between Third HarborConstruction and Third Harbor Maritime on 6 July 2018,pursuant to which, the Novation was retroactively effectiveas at the date of 1 December 2017

[REDACTED]

“Offshore Reorganisation” the offshore reorganisation of our Group in respect of ourCompany and our subsidiaries outside the PRC

DEFINITIONS

– 20 –


“Onshore Reorganisation” the onshore reorganisation of our Group in respect of oursubsidiaries in the PRC

[REDACTED]

“PBOC” the People’s Bank of China (中國人民銀行), the central bankof the PRC

[REDACTED]

“PRC” or “China” People’s Republic of China, but for the purpose of thisdocument and for geographical reference only and exceptwhere the context requires otherwise, references in thisdocument to “China” and the “PRC” do not apply to HongKong, Macau and Taiwan

DEFINITIONS

– 21 –


“PRC Legal Advisers” Allbright Law Offices, the legal advisers to our Company asto PRC law

“[REDACTED] Investment” the [REDACTED] investment in our Group by the[REDACTED] Investor, as further detailed in the sectionheaded “History, Reorganisation and Corporate Structure –The [REDACTED] Investment” in this document

“[REDACTED] Investor” or“Worldlink”

Worldlink Resources Limited (世聯資源有限公司), acompany incorporated under the laws of Hong Kong withlimited liability on 23 January 2013, which is wholly ownedby Ms. Olive Chen, an executive Director

[REDACTED]

“provinces” include provinces, autonomous regions and municipalitiesunder the direct administration of the central government ofthe PRC

“PSB” Pahaytc Sdn Bhd, a company incorporated under the lawsof Brunei on 9 September 1996, the current registeredholder of 1% shareholding interest in Benteng Brunei as anominee for Maritime Vansun, and an Independent ThirdParty

“PTPB” PT. Indo Panshi Bumi, a company established under thelaws of Indonesia on 17 January 2008, the currentregistered holder of 33% shareholding interest in BentengIndonesia under the Contractual Arrangements, and aconnected person

“PTSP” PT. Indo Sichuan Petroleum, a company established underthe laws of Indonesia on 3 November 2008, the formerregistered holder of 33% shareholding interest in BentengIndonesia under the Contractual Arrangements

DEFINITIONS

– 22 –


[REDACTED]

“Renminbi” or “RMB” the lawful currency of the PRC

“Reorganisation” the Onshore Reorganisation and Offshore Reorganisationundergone by our Group in preparation for the[REDACTED] details of which are set out in the sectionheaded “History, Reorganisation and Corporate Structure –Reorganisation” in this document

“Royal Karry” Royal Karry HK Engineer Limited (忠德凱瑞(香港)工程有限公司), a company incorporated under the laws of HongKong with liability limited by shares on 8 February 2018 andan indirect wholly-owned subsidiary of our Company

“SAFE” the State Administration of Foreign Exchange of the PRC(中華人民共和國國家外匯管理局)

DEFINITIONS

– 23 –


“SAIC” State Administration of Industry and Commerceof the PRC (中華人民共和國國家工商行政管理總局) or StateAdministration for Market Regulation (國家市場監督管理總局) after the 2018 State Council Reform

“SASAC” State-owned Assets Supervision and AdministrationCommission of the State Council (國務院國有資產監督管理委員會)

“SFC” the Securities and Futures Commission of Hong Kong

“SFO” the Securities and Futures Ordinance, Chapter 571 of theLaws of Hong Kong, as amended, supplemented orotherwise modified from time to time

“Shanghai HousingAdministration”

Shanghai Municipal Housing and Urban-RuralConstruction Administration (上海市住房和城鄉建設管理委員會), formerly known as Shanghai Municipal UrbanConstruction Administration (上海市市政工程局) orShanghai Municipal Urban-Rural Construction andTransportation Administration (上海市城鄉建設和交通委員會)

“Shanghai Shanyu” Shanghai Shanyu Construction and Engineering Co., Ltd.(上海善豫建設工程有限公司), a company established underthe laws of the PRC as a limited liability company on 30November 2017 and is an indirect wholly-owned subsidiaryof our Company

“Shanghai Xingning” Shanghai Xingning Construction and Engineering Co., Ltd.(上海星凝建設工程有限公司), a company established underthe laws of the PRC as a limited liability company on 14December 2017 and is an indirect wholly-owned subsidiaryof our Company

“Shanghai Yubo” Shanghai Yubo Construction and Engineering Co., Ltd. (上海譽帛建設工程有限公司), a company established under thelaws of the PRC as a limited liability company on 1December 2017 and is an indirect wholly-owned subsidiaryof our Company

“Share(s)” ordinary share(s) of HK$0.01 each in the share capital ofour Company

DEFINITIONS

– 24 –


[REDACTED]

“Share Option Scheme” the share option scheme conditionally approved andadopted by our Company on 19 October 2018, the principalterms of which are summarised in section headed“Statutory and General Information – E. Share OptionScheme” in Appendix IV to this document

“Share Transfer Agreement” the share transfer agreement dated 1 May 2018 enteredinto between Royal Karry, Third Harbor Construction andWorldlink, pursuant to which Royal Karry agreed to acquire98.0072% and 1.9928% of the registered capital inShanghai Shanyu from Third Harbor Construction andWorldlink, respectively

“Shareholder(s)” holder(s) of our Share(s)

“SMCOC” Shanghai Municipal Commission of Commerce (上海市商務委員會)

“Sole Sponsor” Orient Capital (Hong Kong) Limited (東方融資(香港)有限公司)

[REDACTED]

“State Administration ofTaxation” or “SAT”

State Administration of Taxation of the PRC (中華人民共和國國家稅務總局)

[REDACTED]

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“Subscription Agreement” the agreement dated 11 April 2018, pursuant to whichWorldlink agreed to subscribe for 180,000 new Sharesrepresenting 9% of the then total issued share capital of ourCompany as enlarged by the subscription, at a totalsubscription price of US$9,584,744.54 (equivalent toapproximately RMB60,000,000)

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

DEFINITIONS

– 25 –


“substantial shareholder(s)” has the meaning ascribed to it under the Listing Rules

“Takeovers Code” the Codes on Takeovers and Mergers and Share Buy-backs of Hong Kong

“Third Harbor Construction” Shanghai Third Harbor Benteng Construction andEngineering Co., Ltd.* (上海三航奔騰建設工程有限公司)(formerly known as First Engineering Company of ThirdHarbor Bureau* (第三航務工程局第一工程公司)), a companyestablished under the laws of the PRC as a limited liabilitycompany on 1 June 1989, and a connected person. Forfurther details, please refer to the section headed “History,Reorganisation and Corporate Structure – Corporate andbusiness development history” in this document

“Third Harbor ConstructionContract Assets”

the port, waterway and marine engineering work and/orservices which were performed by Third HarborConstruction and had been certified by its customers as at30 November 2017, all of which Third Harbor Constructiondid not have the right to bill as at that date pursuant tocertain conditions specified in the relevant project contracts

“Third Harbor ConstructionTrade Receivables andPayables”

the trade, bills, retention and other receivables and thetrade, bills, retention and other payables of Third HarborConstruction as at 30 November 2017 in relation to its port,waterway and marine engineering business prior to 30November 2017

“Third Harbor Maritime” Shanghai Third Harbor Benteng Maritime Engineering Co.,Ltd.* (上海三航奔騰海洋工程有限公司), established underthe laws of the PRC as a limited liability company on 14August 2017, and a wholly-owned subsidiary of ourCompany

“Track Record Period” the three financial years ended 31 December 2015, 2016and 2017 and the four months ended 30 April 2018

“Transferred Business andAssets”

the business licenses, business contracts, assets andliabilities and major employees of Third HarborConstruction relating to port, waterway and marineengineering that were transferred from Third HarborConstruction to Third Harbor Maritime pursuant to theBusiness and Asset Transfer Agreements

DEFINITIONS

– 26 –


[REDACTED]

“United States”, “U.S.” or “US” the United States of America, its territories, its possessionsand all areas subject to its jurisdiction

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

“U.S. Securities Act” the U.S. Securities Act of 1933, as amended, and the rulesand regulations promulgated thereunder

“VAT” value-added tax

“Watts Gallop” Shanghai Watts Gallop Holding Group Co., Ltd.* (上海華滋奔騰控股集團有限公司) (formerly known as ZhejiangBenteng Investment Co., Ltd.* (浙江奔騰投資有限公司) andZhejiang Benteng Investment Group Co., Ltd.* (浙江奔騰投資集團有限公司)), a company established under the laws ofthe PRC on 13 November 2003, and a connected person.For further details, please refer to the section headed“Relationship with Controlling Shareholders – Interests ofour Controlling Shareholders in Watts Gallop Group” in thisdocument

“Watts Gallop Group” Watts Gallop and its subsidiaries

[REDACTED]

DEFINITIONS

– 27 –


“Ye Wang Zhou Holding” Ye Wang Zhou Holding Limited, a BVI business companyincorporated under the laws of the BVI with limited liabilityon 8 December 2017, which is owned as to 46.76%,32.40%, 8.10%, 7.34% and 5.40% by Mr. Ye Kangshun (葉康舜), Mr. Wang Xiuchun (王秀春), Ms. Zhou Meng (周萌),Mr. Wang Shiqin (王士勤) and Mr. Wang Likai (王利凱),respectively, and is a Controlling Shareholder

[REDACTED]

“%” per cent

“km” kilometre

“m2” or “sq.m.” square metre

“m3” cube metre

All dates and times refer to Hong Kong dates and time.

Unless otherwise specified, certain amounts denominated in HK$ have been translated,

for the purpose of illustration only, into RMB or US$, and vice versa, in this document at the

rates of HK$1.00 to RMB0.8830, being the PBOC rate prevailing on the Latest Practicable

Date, and US$1.00 to HK$7.8357, being the exchange rate set forth in the H.10 statistical

release of the Board of Governors of the Federal Reserve Board. No representation is made

that any amounts in RMB, HK$ and US$ can be or could have been at the relevant date

converted at the above rate or any other rates or at all.

Certain amounts and percentage figures included in this document have been subject to

rounding adjustments. Accordingly, figures shown as totals in certain tables may not be as

arithmetic aggregation of the figures receding them.

If there is any inconsistency between the Chinese names of entities or enterprises

established in China and their English translations, the Chinese names shall prevail. The

English translation of company names in Chinese or another language which are marked with

“*” and the Chinese translation of company names in English which are marked with “*” are for

identification purpose only.

DEFINITIONS

– 28 –


This glossary contains explanations of certain terms used in this document inconnection with our Group and our business. These terms and their meanings may notcorrespond to standard industry meanings or usage of these terms.

“bored pile” a type of pile installed by machine boring to the requiredlevel and subsequently filling the hole with concrete

“dredging” removal of sand, sediment, rocks or other materials fromthe seabed

“dolphin structure” a marine structure with no connection to the shore,constructed to guide, berth or moor floating vesselsapproaching ports, docks or jetties. It is constructed using agroup of piles or in a sheet piled enclosure filled in withplain and reinforced concrete

“ISO” International Organisation for Standardisation, a worldwidefederation of national standards bodies

“ISO9001” a standard under ISO used for certification or registrationand contractual purposes by organisations seekingrecognition of their quality management, which specifiesthe requirement for quality management systems for anyorganisation that needs to demonstrate its ability toconsistently provide products that meet its requisitestandards

“land reclamation” the process of filling in areas submerged under sea levelwith suitable landfill materials to form new land so thatdevelopment or construction of buildings or otherdevelopment can take place on such new land

“PHC” the prestressed high-intensity concrete is a kind of fineconcrete made by centrifugal dewatering and compacting,and is often pressed and high-pressured steam cured

“piling” any work in connection with or for the sinking or forming ofa pile in the ground by hammering, jacking, screwing,augering, boring, jetting, vibrating, casting or any othermeans and also means the driving or sinking of any casingor tube into ground to form a well or shaft for foundationpurposes, whether or not the casing or tube is laterextracted

“seawall” a structure built in a land reclamation project to protect theland reclamation from ocean waves and erosion

GLOSSARY OF TECHNICAL TERMS

– 29 –


In this document, statements of or references to our intentions or that of any of ourDirectors are made as at the date of this document. Any such intentions may change in light offuture developments.

This document contains forward-looking statements that state our intentions, beliefs,expectations or predictions for the future that are, by their nature, subject to significant knownor unknown risks, uncertainties and other factors, some of which are beyond our control, whichmay cause our actual results, performance or achievements, or industry results, to bematerially different from any future results, performance or achievements expressed orimplied by the forward-looking statements. These forward-looking statements include, withoutlimitation, statements relating to:

• our business and operating strategies and our ability to implement such strategies;

• our contracts on hand;

• cost, fluctuations in the prices and availability of raw materials and subcontractingservices;

• our operations and business prospects, including development plans for our existingand/or new businesses;

• future developments and competitive environment in the PRC and Southeast Asia inwhich we operate;

• the regulatory environment and industry outlook in general for the industriesdiscussed herein;

• general political, economic, legal and social conditions in the PRC and SoutheastAsia in which we operate;

• our future capital needs and capital expenditure plans;

• our dividend distribution plans;

• capital market developments;

• our financial condition and performance;

• the competitive markets for our services and work and the actions and developmentsof our competitors;

• volumes, operations, margins, risk management and exchange rates;

• exchange rate fluctuations and developing legal system, in each case pertaining tothe PRC and Southeast Asia;

FORWARD-LOOKING STATEMENTS

– 30 –


• macroeconomic measures taken by the PRC government to manage economic

growth;

• other statements in this document that are not historical fact; and

• other factors beyond our control.

The words “aim”, “anticipate”, “believe”, “consider”, “could”, “predict”, “estimate”,

“potential”, “continue”, “expect”, “going forward”, “intend”, “may”, “plan”, “seek”, “will”, “would”,

“should” and the negative of these terms and other similar expressions identify a number of

these forward-looking statements. These forward-looking statements are necessarily

estimates reflecting the best judgment of our Directors and management and involve a number

of risks, uncertainties and assumptions that could cause actual results to differ materially from

those suggested by the forward-looking statements. Should one or more of these risks or

uncertainties materialise, or should the underlying assumptions prove to be incorrect, our

business, financial condition and results of operations may be adversely affected and may

vary materially from those described herein as anticipated, believed or expected. Accordingly,

such statements are not a guarantee of future performance and you should not place undue

reliance on such forward-looking information. These forward-looking statements should be

considered in light of various important factors, including those set out in the section headed

“Risk Factors” in this document. Moreover, the inclusion of forward looking statements should

not be regarded as representations by us that our plans and objectives will be achieved or

realised. We undertake no obligation to update or revise any forward-looking statements,

whether as a result of new information, future events or otherwise. In light of these risks,

uncertainties and assumptions, the forward-looking events discussed in this document might

not occur. Our Directors confirm that these forward-looking statements are made after due and

careful consideration and on bases and assumptions that are fair and reasonable. All

forward-looking statements in this document are qualified by reference to this cautionary

statement.

FORWARD-LOOKING STATEMENTS

– 31 –


The [REDACTED] and the investment in our Shares involve certain risks. You

should carefully consider all the information set out in this document, including,

but not limited to, the risks and uncertainties described in the following risk factors

when considering making an investment in our Shares being [REDACTED] in the

[REDACTED]. Our operations involve certain risks, many of which are beyond our

control. You should also pay particular attention to the fact that although we are a

company incorporated in the Cayman Islands, and our business is mainly located

in the PRC and Southeast Asia, and we are governed by a legal and regulatory

environment that may differ from that which prevails in other countries and

jurisdictions. Our business, results of operations and financial condition may be

adversely affected by any of the risks and uncertainties described below. The

trading price of our Shares may decline due to any of these risks and uncertainties

and you may lose all or part of your investment.

RISKS RELATING TO OUR BUSINESS

Our performance is dependent on the general economic conditions and policies of theport, waterway and marine engineering industry in the PRC, especially governmentpolicies on public spending on transportation infrastructure projects

We derived a substantial portion of our revenue from the provision of port and waterwayengineering work and services in the PRC during the Track Record Period. For the three yearsended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2018, ourrevenue generated from the provision of port and waterway engineering work and services inthe PRC was approximately RMB1,124.7 million, RMB1,171.6 million, RMB968.5 million andRMB94.1 million, respectively, representing approximately 100%, 92.7%, 68.6% and 35.1% ofour total revenue for the same period, respectively. We believe that the demand for our portand waterway engineering work and services is closely related to the level of governmentspending on transportation infrastructure, in particular, spending related to the constructionand improvement of ports and waterways in the PRC, which in turn, largely depends on thePRC general economic conditions and government policies. Further, as a few of our majorcustomers during the Track Record Period are customers in the public sector, or projects inwhich the owners were PRC government agencies or entities at the national, provincial andlocal levels and Chinese state-owned enterprises, any downturn in the PRC economy and/orchanges of policies in the PRC port, waterway and marine engineering industry will affect thenumber and/or value of port infrastructure and waterway engineering projects of ourcustomers in the PRC, which may correspondingly reduce the demand for our work andservices.

Our customers pay us by way of progress payments and require performance depositand retention money, and any delay in progress payments or release of performancedeposit and retention money may affect our working capital and cash flow

We generally recognise our revenue from the provision of our port and waterwayengineering work and/or services upon completion of certain phases of a contract. We typically

RISK FACTORS

– 32 –


submit work-in-progress applications to our customers on a monthly basis, which generally

include (i) our estimated value of work completed during the month between our previous and

current monthly cut-off dates; and (ii) proposed payment amount to be settled by our

customers based on such estimated value of work and/or services completed and calculated

at certain percentage in accordance with the stipulated terms and conditions of the respective

contracts. The monthly cut-off dates of such work-in-progress applications vary from project to

project and are also typically specified in the contracts. Typically, the authorised personnel

employed by our customers will review our work-in-progress applications and certify the value

of the work and/or service completed and billed by us in such month. Once our customers

agree with our work-in-progress applications, they will arrange payment in accordance with

the payment amount in our work-in-progress applications within a specified period of time

according to the specified terms in the contracts. Further, our customers generally retain a

retention money of 5% to 10% of the total projects’ contract value, and will be released to us

upon expiry of the defect liability period, which normally lasts for one to two years after the

completion of our projects. In addition, for some of our projects, we may also be required to put

down advanced tender payment and performance deposit. In the event that our customers

experience financial distress or are unable to settle their payments due to us in a timely

manner or at all, our results of operations and financial condition may be materially and

adversely affected. Delays in progress payments or release of performance deposit or

retention money may also increase working capital needs.

During the Track Record Period, the ageing of our trade and retention receivables wasrelatively long, primarily due to our relatively longer receivable collection period as a result ofus having a diversified group of customers, the majority of which are subsidiaries or affiliatesof Chinese state-owned enterprises and public and/or private companies which are also thekey players in the PRC port, waterway and marine engineering industry. For the three yearsended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2018, averageturnover days of our trade and bills receivables were relatively long, which amounted toapproximately 208, 172, 174 and 298 days. As at 31 August 2018, approximately RMB218.8million or approximately 30.5% of our trade, bills and retention receivables as at 30 April 2018had been settled, which was relatively low. For more details, please refer to the section headed“Financial Information – Certain items of combined statements of financial position – Tradeand other receivables” in this document.

If we fail to complete our projects on the agreed completion date, our business, resultsof operations and financial condition may be materially and adversely affected

All our project contracts have their agreed completion dates. We usually stick to ourdeadline for all our projects but there are several factors may lead to material constructiondelays or cost overruns, including but not limited to: (i) failure to obtain various regulatoryapprovals, licences or permits from government agencies as scheduled; (ii) suspension of theconstruction of certain outdoor projects ordered by authorities during periods of severe airpollution; (iii) delivery delays caused by shortages of vessels, key construction equipment, rawmaterials or labour; (iv) unexpected engineering, design, environmental or geologicalproblems; (v) influence of unexpected adverse weather; and (vi) failure to obtain sufficientbank loans or other financing on favourable terms, or at all. We cannot assure that all ourprojects can be completed on time. Any failure or delay during the construction of a project mayresult in a delay or a reduction in payment by project owners to us, which may materially andadversely affect our business, results of operations and financial condition.

RISK FACTORS

– 33 –


Our business operates under various permits, licences and/or qualifications and the

loss of or failure to obtain or renew any or all of these permits or licences may materially

and adversely affect our business, results of operations and financial condition

Our business is subject to various government laws and regulations in the various

countries in which we operate. Please refer to the sections headed “Regulatory Overview” and

“Business – Licences and permits” in this document for more details. These operating permits,

licences and/or qualifications are granted, renewed and maintained upon our satisfactory

compliance with, among others, the applicable criteria set by the relevant governmental

departments or organisations. Such criteria may include maintenance of a sufficient project

track record, maintenance of sufficient number of qualified personnel and compliance with

safety regulations and environment protection regulations. These permits, licences and/or

qualifications may only be valid for a limited period of time and may be subject to periodic

review and renewal by government authorities or relevant organisations. In addition, the

standards of compliance required in relation thereto may change from time to time. There is no

assurance that all our required permits, licences and/or qualifications can be maintained,

obtained or renewed in a timely manner or at all. Any changes in the existing government

policies for the port, waterway and marine engineering industry in the countries in which we

operate may result in our failure to obtain or maintain such relevant permits, licences and/or

qualifications. If we are unable to renew or maintain the required permits, licences and/or

qualifications, we may be required to temporarily pause our operations and may not be able to

secure new project contracts, which may materially and adversely affect our business, results

of operations and financial condition.

Our future gross profit and gross profit margin largely depend on our projects on hand

and our ability to secure future sizeable and profitable infrastructure port and waterway

engineering projects, and failure to secure these projects may materially and adversely

affect our business, results of operations and financial condition

Our ability to compete for and secure sizeable and profitable port and waterway

engineering projects is one of the main contributors to our success as well as ongoing growth

and future profitability. We conduct our port and waterway engineering work and/or services

on a project-by-project basis and our customers may vary from year to year. Further, for our

port and waterway engineering projects, we typically negotiate the contract unit price of each

of our work and/or service items to be provided under a project, which are agreed by our

customers and specified in the contracts. As such, we may record different gross profit margin

for projects in different financial year/period. As at the Latest Practicable Date, we had in total

11 projects on hand located in the PRC and Southeast Asia with an aggregate contract value

of approximately RMB859.8 million. In the event that we are not able to secure new sizeable

and profitable projects or cannot commence any of our projects on hand upon the completion

of our existing projects, our business, results of operations and financial condition may be

materially and adversely affected.

RISK FACTORS

– 34 –


Geopolitical risks may materially and adversely affect our business in countries where

we operate, especially the Southeast Asian countries

For the three years ended 31 December 2015, 2016 and 2017 and the four months ended

30 April 2018, our revenue generated from our business operation in Southeast Asia

represented nil, approximately 7.3%, 31.4% and 64.9% of our total revenue for the same

period, respectively. Such revenue was mainly generated from our provision of port

infrastructure work and/or services in Brunei and Indonesia. In the foreseeable future, we

believe that we will continue to capture opportunities in the Southeast Asian countries.

As a result of our overseas operations in Southeast Asia, we are exposed to various

geopolitical risks in countries where we operate, which include, among other things, loss due

to civil unrest, acts of terrorism, acts of war, other armed conflict, regional and global political

or military tensions, strained or altered foreign relations, demonstrations or policies such as

the implementation of protectionism and increased requirements or general prohibitions

against international investors and construction companies. There is no assurance that

changes in the geopolitics of the countries where we operate will not materially and adversely

affect our business, results of operations and financial condition. For more specific risks

relating to conducting our business in Southeast Asia, please refer to the section headed “Risk

Factors – Risks relating to conducting business in Southeast Asia” in this document.

Furthermore, we may need to allocate management resources and labour forces to

countries where our projects are situated. This may result in shortage of financial, human and

management resources to our current business.

Our projects in progress are subject to unexpected adjustments and cancellations. It is,

therefore, an uncertain indicator of our future earnings and may materially and

adversely affect our business, results of operations and financial condition

Our projects in progress represent our contracts for work awarded to us but have not yet

been completed as at a certain date. The contract value of a project represents the amount that

we expect to receive under the terms of the contract if the contract is performed in accordance

with its terms. The final settlement value of our project may be different from its original

contract value as the final payment received by us from our customers are only subject to the

actual quantities of work and/or services completed by us under such projects based on the

pre-agreed contract unit price for each of our work and/or service items specified in the

contracts. As such, we cannot guarantee that the revenue projected in our project in progress

will be realised or, if realised, will result in profit. Projects may remain in our backlog for an

extended period of time. In addition, project cancellations or scope adjustments may occur

from time to time, which may reduce the dollar amount of our backlog and the revenue and

profit that we will ultimately earn from the contracts. Therefore, our projects in progress is an

uncertain indicator of our future earnings and may materially and adversely affect our

business, results of operations and financial condition.

RISK FACTORS

– 35 –


The amount of revenue that we are able to derive from a project may be higher or lower

than the original contract value and the recoverability of our contract assets may also

affect our results of operation, liquidity and financial position

The amount of revenue that we are able to derive from a project, that is, the final

settlement value of our project, may be different from its original contract value as the final

payment received by us from our customers are only subject to the actual quantities of work

and/or services completed by us for such projects based on the pre-agreed contract unit price

for each of our work and/or service items specified in the contracts. All of our work and/or

services performed under the contracts by us are inspected and certified by our customers

accordingly. As at the Latest Practicable Date, we had (i) 37 projects in progress with total

contract value of approximately RMB3,221.4 million and the total expected revenue

contribution from these projects in progress for the eight months ending 31 December 2018

and the year ending 31 December 2019 will be approximately RMB903.9 million and

RMB349.4 million, respectively; and (ii) 11 projects on hands with total contract value of

approximately RMB859.8 million and the expected revenue contribution from these projects

on hand for the eight months ending 31 December 2018 and the year ending 31 December

2019 will be approximately RMB313.6 million and RMB468 million, respectively. As such,

there is no assurance that the amount of revenue derived from our projects in progress and

projects on hand will not be substantially different from the original contract sum as specified

in the relevant contracts.

In addition, contract assets are work and/or services that have been performed but not yet

submitted and/or been certified by customers, and not yet billed. For those contract assets that

are not yet certified, there is no assurance that our proposed workdone to customers will be

able to be certified accordingly. Our Directors consider that our contract assets have

substantially the same risk characteristics as our trade receivables for the same types of

contracts. As at 31 December 2015, 2016 and 2017 and 30 April 2018, the loss allowance for

provision for our contract assets was approximately RMB1 million, RMB1.1 million, RMB0.7

million and RMB0.7 million, respectively, and the expected loss rate of our contract assets is

assessed to be 0.28%. There is no assurance that we will be able to bill and receive the full

amount of revenue due from our customers for the work and/or services performed by us as we

may face the credit losses to these contract assets. If we are not able to do so, our results of

operation, liquidity and financial position may be adversely affected.

Significant competition in certain markets in which we operate can reduce our market

share and may materially and adversely affect our business, results of operations and

financial condition

We face significant competition in the port, waterway and marine engineering industries

in both the PRC and Southeast Asia. Our competition mainly comes from the large state-

owned enterprises and public and/or private companies in the PRC. Some of them may have

advantages over us in terms of capacity, access to capital, operational and managerial

expertise, pricing or customer contacts. New players may also enter into the industry if they

possess relevant experience, advanced skills and/or technologies, vessels and construction

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equipment and sufficient capital, according to Frost & Sullivan. If there is an increase in the

number of competitors in the industry without a corresponding increase in port, waterway and

marine engineering projects, competition within the port, waterway and marine engineering

industry would intensify.

Further, with intensified competition, there can be no assurance that our current or

potential competitors will not conduct work or offer services comparable or superior to those

that we conduct or offer at the same or lower prices or that our current or potential competitors

will not adapt more quickly than we do to evolving industry trends and changing market

conditions. We may lose our customers to our old and new competitors if, among other things,

we fail to keep our prices down or fail to enhance our efficiency and upgrade our port

infrastructure and waterway engineering technologies. Increased competition may result in

price reductions, reduction of profit and loss of our market share. If this happens, our business,

results of operations and financial condition may be materially and adversely affected.

Our ability to compete projects largely depends on the availability of our vessels and

construction equipment, and failure to maintain the capacity of our vessels and

construction equipment or lease or purchase the proper, compatible and advanced

vessels and construction equipment in a timely manner may materially and adversely

affect our business, results of operations and financial condition

Our capacity to provide port and waterway engineering work and/or services to our

customers largely depends on the availability of our vessels and construction equipment. As

at the Latest Practicable Date, we owned two piling barges and a total of other 97 construction

equipment. If the projects we take up or are seeking to take up require more than our own

available vessels and construction equipment, we may need to lease or purchase vessels and

construction equipment from third parties which may result in higher project costs, lower profit

margins and greater uncertainty as vessels and construction equipment for leasing may not be

necessarily available on the market at the relevant times. We cannot assure you that our

vessels and construction equipment will always be available for our operations in the future,

and we will be able to lease or purchase the proper, compatible or most advanced vessels and

construction equipment to take on certain projects in a effectively and timely manner or on

commercially acceptable terms to us, or at all. Moreover, our vessels and construction

equipment may succumb to breakdown and their reparation or replacement may result in very

high costs and delay to our projects. If replacement vessels and construction equipment are

leased from third parties, it may result in even higher projects costs. If any of the above events

occurs frequently during our operation of business, it may cause delays to our projects and

higher project costs and as a result, our business, results of operations and financial condition

may be materially and adversely affected.

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We derived a significant portion of our revenue from our major customers during the

Track Record Period, failure to maintain our business relationship with or secure new

business from these major customers may materially and adversely affect our business,

results of operations and financial condition

Our customers mainly comprise Chinese state-owned enterprises and public and private

companies, which are typically project owners and/or main contractors. We generally do not

enter into long-term or framework agreements with our customers but are engaged by them on

a project-by-project basis. Our customers vary from year to year. For the three years ended 31

December 2015, 2016 and 2017 and the four months ended 30 April 2018, our revenue derived

from our top five customers accounted for approximately 51%, 51.4%, 65.9% and 66.9% of our

total revenue for the same period, respectively. We expect that we will continue to derive a

significant portion of our revenue from our top five customers. There is no assurance that our

top five customers and our other major customers will continue to provide us with new

business in the future. If we are unable to secure new contracts or work for any of our new

contracts has not commenced upon completion of our contracts on hand, our business, results

of operations and financial condition maybe materially and adversely affected. Further, we

also cannot ensure that our other ongoing customers will continue to engage us for new

projects in the future. In the event that we are unable to secure new contracts from our existing

customers and/or obtain new business from potential customers, our business, results of

operations and financial condition may be materially and adversely affected.

If we fail to estimate our costs accurately or fail to execute projects within our cost

estimates and/or unable to perform our contracted work and/or services at an

acceptable profit margin, our business, results of operations and financial condition

may be materially and adversely affected

We prepare our tenders or quotations based on our estimates and available information,

taking into consideration the scope of work and/or services, technologies and quality

specifications, the deployment of our resources including our vessels and construction

equipment, costs of raw materials and subcontracting, geographical location of the projects,

weather condition as well as the operational risks and length of the relevant projects. The

significant variation in the size of projects that we can secure may affect our allocation of

resources and business performance. In the event that we fail to allocate our resources

efficiently or effectively, or should there be any cost overruns or underestimates, we may suffer

losses. Our tender or quotation may carry inherent risks, including losses due to

underestimating costs and unpredictable complexity in operating projects and other

circumstances or incidents that may occur during the period that may cause the project costs

to increase unexpectedly.

Additionally, our revenue, operating costs and profit on our contracts may sometimes

vary largely from our original estimates as a result of factors such as, variations in labour and

construction equipment productivity, price fluctuations of raw materials and subcontracting,

failure to properly estimate the maintenance and/or repair costs of vessels and construction

equipment that we own and/or use, unusual or unexpected geological conditions which make

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it more technically difficult to carry out work than initially anticipated, resulting in additional

costs and/or failure to perform our work and/or services on time or at the required standard of

quality. Further, for some of our projects, we may be required to share a small portion of the

significantly increased costs due to change of certain circumstances. If any of the above

happens, our business, results of operations and financial condition may be materially or

adversely affected.

We depend on third-party subcontractors to complete many of our projects and

non-performance or poor quality work of these subcontractors may materially and

adversely affect our reputation, results of operations and financial condition

In the course of our operation, we typically subcontract various labour intensive

construction and ancillary work, such as concrete pouring and assembling reinforcement, to

third-party subcontractors. Although we have established a system with respect to the

selection and control of our subcontractors, we may not be able to monitor their performance

as directly and efficiently as we monitor our own staff. Furthermore, as our customers do not

have a direct contractual relationship with our subcontractors, we take the risk of

subcontractors’ poor quality work which in turn exposes us to liability for defects caused by our

subcontractors. All these risks can materially and adversely affect our reputation, result of

operations and financial condition. In addition, we may also be unable to hire qualified and

suitable subcontractors to complete our work within our cost estimate and the timeframe

required in our projects or when additional work which are required to be completed by

qualified subcontractors arise. If we are unable to hire qualified subcontractors at an effective

and efficient manner, our ability to complete projects may be impaired. If the amounts we are

required to pay for subcontracting exceed our cost estimate for a project, and we may be

unable to pass on the risk of increased subcontracting costs to our customers, our business,

results of operations and financial condition may be materially and adversely affected.

Our operations depend on the availability of raw materials at acceptable prices and

failure to source sufficient raw materials with acceptable prices and good quality may

materially and adversely affect our business, results of operations and financial

condition

The raw materials used in our port and waterway engineering projects mainly include

cement, sand and rock, steel, tube piles and others. For the three years ended 31 December

2015, 2016 and 2017 and the four months ended 30 April 2018, our cost of raw materials and

consumables used accounted for approximately 22.2%, 35%, 46.8% and 66.3% of our total

cost of sales for the same period, respectively. In the course of our operation, we also

subcontract part of raw materials procurement to our third-party subcontractors. We cannot

assure you that the costs of these raw materials will be stable as the price and availability of

them may vary significantly from time to time. Raw materials, such as steel for example, have

been subject to substantial price volatility and periodic supply shortage in the PRC. During

times of supply shortage, we may have to pay significantly higher prices to obtain sufficient raw

materials required for our operations.

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Although we were typically allowed by our customers to adjust our contract unit prices ifwe experienced major raw material price fluctuation that is generally determined by therelevant raw material market, we cannot assure you that we will always be able to sourcesufficient raw materials from our suppliers at the prevailing or acceptable prices in a timelymanner or at all. We also cannot assure you that shortages of raw materials will not occur inthe future, or that we will be able to pass on part or all of such increases to our customers. Anyfailure to obtain adequate raw materials with acceptable prices or quality may materially andadversely affect our business, results of operations and financial condition.

Increase in labour costs and potential industrial actions, such as labour disputes orstrikes, may materially and adversely affect our business, results of operation andfinancial condition

According to Frost & Sullivan, the average level of wages and benefits for employees inthe PRC has shown an increasing trend over the past few years, and this trend is expected tocontinue in the near future. Further, as we have commenced our business operation in Bruneiand Indonesia in 2016, the level of salaries and benefits for our staff in Southeast Asia isgenerally higher than the same in the PRC. We cannot assure that we will be able to control orpass along any future increase in labour costs to our customers or project owners. In addition,given the complexity and nature of our projects, we may be constrained by industrial actions,labour disputes or strikes. We cannot assure you that we will be able to avoid or manage theoccurrence of any such industrial actions, labour disputes or strikes in the future. Theoccurrence of any of the foregoing may materially and adversely affect our business, results ofoperations and financial condition.

Cash inflow and outflow in connection with construction projects may be irregular andmay thus affect our net cash flow position

Cash inflow from operating activities primarily consisted of our revenue from the receiptof payments for the provision of our port and waterway engineering work and/or services. Cashoutflow from operating activities primarily consisted of our raw materials and subcontractingcosts for the provision of our work and/or services. For the three years ended 31 December2015, 2016 and 2017 and the four months ended 30 April 2018, we recorded net operatingcash inflow of approximately RMB131.2 million, RMB51.8 million, RMB0.4 million and RMB5.9million, respectively, while we recorded net operating cash outflow of approximately RMB13.8million for the four months ended 30 April 2017.

In a construction project, cash outflow to pay certain operating expenditures, whichprimarily consist of payment for our raw materials and subcontracting costs for the provision ofour work and/or services, may not align with cash inflow from the project progress paymentsto be received at the relevant periods. Project progress payments will be paid after ourconstruction work commence and are inspected and certified by our customers (or authorisedpersonnel employed by customers). Accordingly, our cash inflow and outflow for a particularproject may fluctuate as our construction work proceed. If during any particular period of time,there exist too many projects which require substantial cash outflow while we have significantless cash inflow during the same period, our liquidity and cash flow position may be adverselyaffected.

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Our deferred income tax assets are subject to future uncertainties

In the application of our accounting policies, our management is required to make

judgments, estimates and assumptions about the carrying amounts of certain assets and

liabilities that are not readily apparent from other sources. The estimates and associated

assumptions are based on historical experience and other factors that are considered

relevant. Therefore, actual results may differ from these accounting estimates. As at 31

December 2015, 2016 and 2017 and 30 April 2018, we recognised deferred income tax assets

of nil, approximately RMB1.2 million, RMB12.1 million and RMB12.2 million, respectively. The

temporary differences between the carrying amount of our assets and liabilities in the financial

statements and their tax bases give rise to deferred income tax assets or liabilities. We

recognise deferred income tax assets based on our estimates and assumptions that they will

be recovered from taxable income arising from continuing operations in the foreseeable future.

If sufficient profits or taxable temporary differences are not expected to be generated or are

less than expected, our deferred income tax assets should be reversed accordingly.

Defect liability claims may materially or adversely affect our business, results of

operations and financial condition

We are subject to a defect liability period which normally lasts for one to two years, during

which we are responsible for rectifying defects in relation to our work and/or services

performed. As such, we may be subject to claims due to defects in relation to our port,

waterway and marine engineering work and/or services that are existing but not yet found,

developed or visible at the time of completion. In the event that there are any significant claims

against us for defect liability or any default or failure in relation to our work done by our

customers, our business, results of operations and financial condition may be materially and

adversely affected.

Our success is dependent on our key management personnel and our failure to attract

and retain qualified personnel may materially or adversely affect our business, results

of operations and financial condition

Our success depends heavily on our ability to attract, retain and motivate our key senior

management team members who possess solid technical know-how and extensive

managerial experience in the port, waterway and marine engineering industry and also have

established solid business relationship with our customers, suppliers and subcontractors. For

more details of our Directors and senior management, please refer to the section headed

“Directors, Senior Management and Employees” in this document. If one or more of these

personnel are unable or unwilling to continue in their present positions, we may not be able to

recruit suitable and qualified new employees to replace them, which may materially and

adversely affect our business, results of operations and financial condition.

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Adverse weather and seasonal conditions, natural disasters, acts of God, politicalunrest and other events may have a negative impact on our operations

As part of our port and waterway engineering work and services are performed on orunder water, our business, operating results and financial condition may be affected byseasonal weather conditions. For instance, in northern China, we cannot conduct most of ourport infrastructure and waterway engineering work under the water from January to March dueto the cold weather. In Indonesia, we may also need to plan our construction schedule aheadto avoid the monsoon rains season and a consequent rise in the sea level which may impactthe areas where our projects are located. Further, we may also experience seasonalfluctuation in our revenue and operating income in the first quarter of the year due to theholiday seasons, which in turn, reduce the business activities and labour force in the market.As such, unfavourable weather and seasonal conditions may prevent us from conducting workat our work sites or delivering our work or services to our customers in accordance with thecontract schedules, or directly reduce our productivity.

In addition, acts of war, political unrest and terrorist attacks in the PRC or in SoutheastAsian countries may also cause significant damage to our business operations and financialcondition. Fires, volcanic eruptions, tsunamis or other natural disasters and acts of god inplaces where we have operations may also cause damage to our equipment or ourconstruction work. Any of the above events may materially and adversely affect our business,results of operations and financial condition.

We may be subject to litigation risks and our business, results of operations andfinancial condition may be materially and adversely affected

In the ordinary course of business, claims involving project owners, customers, suppliersand subcontractors may be brought against us and by us in connection with our contracts.Claims may be brought against us for alleged defective or incomplete work, defectiveproducts, related personal injuries and death, damage to or destruction of property, breachesof warranty and late completion of project work. The claims may involve actual damagesand/or contractually agreed liquidated sums. If we were found to be liable to any of the claimsagainst us, we would have to incur a charge against earnings to the extent a reserve had notbeen established for the matter in our accounts, or to the extent the claims were not sufficientlycovered by our insurance coverage. Claims brought by us against project owners may includeclaims for additional costs incurred in excess of current contract provisions arising out ofproject delays and changes in the initial scope of work. Claims between us and oursubcontractors and suppliers may include claims similar to those described above.

Claims brought against us and by us, if not resolved through negotiation, are often subjectto lengthy and expensive litigation or arbitration proceedings. Amounts ultimately realisedfrom claims by us may differ materially from the balances included in our financial statements,resulting in a charge against earnings to the extent profit has already been accrued on aproject contract. Charges associated with claims brought against us and write downsassociated with claims brought by us may materially and adversely affect our business, resultsof operations and financial condition.

RISK FACTORS

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We may encounter unexpected difficulties in expanding into new markets

In 2016, we became one of the pioneers in the PRC to set foot in Southeast Asia by

expanding our business in Brunei and Indonesia following China’s Belt and Road Initiative. For

the two years ended 31 December 2016 and 2017 and the four months ended 30 April 2018,

our revenue derived from our projects conducted in Brunei and Indonesia was approximately

RMB92.2 million, RMB443.5 million and RMB174.4 million, respectively. We believe that we

will continue to benefit from China’s Belt and Road Initiative by cooperating closely with our

existing customers in the region of Southeast Asia. We also plan to explore new business

opportunities in such region by establishing our presence in Vietnam, Philippines and

Malaysia. Expansion into these markets carries with it many associated risks, including risks

relating to us being relatively new in such markets. Expansion may also stretch our capital,

personnel and management resources that are otherwise available for our current business. In

addition, there may be many established incumbent players in these markets, who already

enjoy significant market share, and it may be difficult for us to win market share from them.

Some of the overseas markets that we are targeting may have a high barrier of entry to foreign

players. There can be no assurance that our expansion plans will be successful.

We are subject to extensive environmental, safety and health regulations, the

requirement to comply with which may be difficult or expensive and may materially and

adversely affect our business, results of operations and financial condition

Under relevant laws of the PRC and other overseas jurisdictions in which we operate,

there are certain health and safety and environmental requirements that we are required to

fulfil. Any failure to comply with these regulations may lead to penalties, fines, suspension of

relevant licences or permits to conduct business, and litigation, which may adversely affect our

business operations and financial condition. Given the magnitude and complexity of these

regulations, compliance with them may be difficult or may involve a significant amount of

financial and other resources. As these laws and regulations continue to evolve, there can be

no assurance that the PRC government or the governments of other jurisdictions where we

operate will not impose additional or stricter laws or regulations, the requirement to comply

with which may prevent us from operating in such jurisdictions or lead to increased project

costs that we may not be able to pass on to our customers. As such, the requirement to comply

with certain health and safety and environmental requirements may materially and adversely

affect our business, results of operations and financial condition.

Our business is subject to significant operating risks and hazards that could result in

monetary damage or personal injury which could cause us to incur substantial costs

and/or liabilities to damages and may materially and adversely affect our business and

financial condition

Our business and operations are generally subject to a number of risks and hazards,

including, among others, those relating to operations under difficult geological conditions.

Furthermore, our port, waterway and marine engineering business is exposed to various

environmental hazards, including ground sliding or collapse of structures, collisions with fixed

RISK FACTORS

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objects, disruption of transportation services, thunderstorm, flooding and pirates. These risks

may result in delay of projects, destruction of vessels and construction equipment, and may

also result in personal injury, environmental damage, monetary losses and even legal liability.

In addition, unexpected hazards and serious incidents may tarnish our good safety record

which may adversely affect our reputation in the industry and damage our business

relationship with our customers. All these risks above may materially and adversely affect our


Our current insurance coverage may not be sufficient and we may not be able to obtain

insurance at an acceptable rate. Any failure to obtain sufficient insurance coverage or

obtain it at an acceptable rate may materially and adversely affect our business, results

of operations and financial condition

During the Track Record Period and up to the Latest Practicable Date, we have

maintained secured insurance policies such as engineering all risks insurance, third party

liability insurance, group life accidental injury insurance and vessel all risks insurance.

Nevertheless, our insurance coverage may not be adequate and sufficient to protect us from

liabilities that we may incur in our business. In addition, due to general increases in medical

costs and wages, our insurance premiums may increase in the future and we may not be able

to obtain similar insurance coverage at acceptable and reasonable rates. Meanwhile, we do

not maintain business interruption insurance. Any business disruption or natural disaster could

result in substantial costs and a diversion of resources. All these risks above may materially

and adversely affect our business, results of operations and financial condition.

Our risk management and internal control system may not fully protect us against

various risks inherent in our business, which may materially and adversely affect our

business, results of operations and financial condition

As we operate in both the PRC and Southeast Asian countries, we have established risk

management and internal control systems consisting of the relevant organisational framework

policies, risk management policies and risk control procedures. These systems are designed

to help us manage our risk exposures, primarily our operational risk, legal risk and liquidity

risk. However, we may not be successful in implementing our risk management and internal

control systems. While we seek to continue to enhance our risk management and internal

control systems from time to time, we cannot assure that our risk management and internal

control systems are adequate or effective notwithstanding our efforts, and any failure to

address any potential risks and internal control deficiencies could materially and adversely

affect our business, financial condition and results of operations.

In addition, since our risk management and internal control system depend on the

effective implementation by our employees, we are not able to assure that all of our employees

will adhere to such policies and procedures, and the implementation of such policies and

procedures may involve human error. We are not able to guarantee that our internal control

system will be effective in preventing the occurrence of corruption, bribery or other illegal

activities. Moreover, our growth and expansion may affect our ability to implement stringent

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risk management and internal control policies and procedures as our business evolves. If we

fail to adopt, implement and modify our risk management and internal control policies and

procedures in a timely manner, our business, results of operation and financial condition may

be materially and adversely affected.

RISKS RELATING TO CONDUCTING BUSINESS IN THE PRC

Changes in economic, political, legal and social developments and conditions in the

PRC or policies adopted by the PRC government could materially and adversely affect

our business, results of operations and financial condition

The economy of the PRC differs from the economies of most developed countries in a

number of areas, including the degree of government involvement, control of capital

investment, and the overall level of development. Before its adoption of reform and open door

policies in 1978, China was primarily a planned economy. In recent years the PRC government

has been reforming the PRC economic system and the government structure. These reforms

have resulted in significant economic growth and social progress. Economic reform measures,

however, may be adjusted, modified or applied inconsistently from industry to industry or

across different regions of the country. As a result, we may not continue to benefit from all, or

any, of these measures. Moreover, we are not able to predict whether changes in the PRC’s

political, economic and social conditions, laws, regulations and policies will have any material

and adverse effect on our current or future business, results of operations and financial

condition.

Our Company may be subject to the PRC enterprise income tax on our worldwide

income under the EIT Law

Our Company is incorporated under the laws of the Cayman Islands and it indirectly holds

interests in certain PRC subsidiaries. Under the EIT Law and the Implementation Rules of

Enterprise Income Tax Law (企業所得稅法實施條例) and other relevant PRC laws and

regulations, enterprises established under the laws within the territory of the PRC, or

established under the laws of a foreign country or region, but whose “de facto management

body” is located in the PRC are treated as resident enterprises for PRC tax purposes. If any

entity is treated as a resident enterprise for PRC tax purposes, it will be subject to PRC

enterprise income tax at the uniform tax rate of 25% on its worldwide income. The term “de

facto management body” is defined as the bodies that have material and overall management

control over the business, personnel, accounts and properties of an enterprise. On 22 April

2009, SAT promulgated the Notice on Issues about the Determination of Chinese-Controlled

Enterprises Registered Abroad as Resident Enterprises on the Basis of Their Body of Actual

Management (amended on 29 January 2014) to clarify the certain criteria for the determination

of the “de facto management bodies” for foreign enterprises controlled by PRC enterprises.

These criteria include: (i) members of senior management who are in charge of the

enterprise’s daily operation and perform their duties in China; (ii) decisions relating to the

enterprise’s financial and human resource matters are made or subject to approval by

organisations or personnel in China; (iii) the enterprise’s primary assets, accounting books

RISK FACTORS

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and records, company seals, and minutes of board and shareholders’ meetings are located ormaintained in China; and (iv) 50% or more of voting board members or senior executives of theenterprise habitually reside in China. If our Company is deemed to be a PRC residententerprise under the EIT Law by the PRC taxation authority, our Company may becomesubject to the PRC enterprise income tax at a rate of 25% on its worldwide income.

PRC regulations on loans to and direct investment by offshore holding companies in thePRC entities may delay or prevent our Group from making loans or additional capitalcontributions to our PRC subsidiaries

As offshore holding company of our PRC subsidiaries, other member(s) of our Group maymake loans to the PRC subsidiaries, or may make additional capital contributions to the PRCsubsidiaries. When any loans or capital contributions are made by our Company or ouroffshore subsidiary, as an offshore entity, to our PRC subsidiaries, such PRC subsidiaries aresubject to the PRC regulations and foreign debt registrations to conduct relevant fillingprocedures for such loans and capital contributions. For example, loans by offshore holdingcompanies to the PRC subsidiaries to finance their activities cannot exceed the differencebetween the total amount of investment of the relevant PRC entity and its registered capital (orother amount of foreign debt determined in accordance with applicable regulations) and mustbe registered with the State Administration of Foreign Exchange of the PRC or its localcounterpart. Our Company may subject to compliance with applicable laws and regulations,also determine to finance the PRC subsidiaries by means of capital contributions. Thesecapital contributions must be subject to the requirements of relevant laws and regulations andapproved by the Ministry of Commerce of the PRC or its local counterpart, if applicable. Thereis no assurance that our Company may obtain these government registrations or approvals ona timely basis, if at all, with respect to future loans or capital contributions by our Company tofinance the PRC subsidiaries. If our Company fails to receive relevant registrations orapprovals, our ability to make equity contributions or provide loans to our PRC subsidiaries orto fund their operations may be negatively affected, which may adversely affect our PRCsubsidiaries’ liquidity and ability to fund their working capital and expansion projects and meettheir obligations and commitments, and in turn, may adversely and materially affect ourbusiness, financial condition and results of operations.

Dividend payable by our Company to Shareholders and gain on the sale of the Sharesmay be subject to the PRC tax

Under the EIT Law and the Regulation on the implementation of the EIT Law, withholdingtax at 10% will normally apply to dividends payable to non-PRC investors which are derivedfrom sources within the PRC. If we are deemed by the PRC tax authorities as a PRC residententerprise for tax purpose in the future, we may be required to withhold the PRC income tax oncapital gains realised from sales of our Shares and dividends distributed to Shareholders, assuch income may be regarded as income from “sources within China”.

In this case, dividend income of our foreign corporate Shareholders which are “non-resident enterprises”, i.e. enterprises that do not have an establishment or place of businessin the PRC, or that have such establishment or place of business in the PRC but the relevant

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income is not effectively connected with such establishment or place of business, aregenerally subject to the PRC enterprise income tax at the rate of 10% to the extent suchdividend has its source within the PRC unless it can be reduced pursuant to the respective taxtreaty between the PRC and the jurisdiction in which our foreign corporate Shareholdersresides which reduces or exempts the relevant tax. Similarly, any gain realised on the transferof shares by such non-resident investors is subject to a 10% PRC enterprise income tax if suchgain is regarded as income derived from sources within the PRC. The preferential tax ratedoes not automatically apply. If the PRC tax authorities deem us as a PRC resident enterprise,Shareholders who are not the PRC tax residents but seeking to enjoy preferential tax ratesunder relevant tax treaties will need to apply to the PRC tax authorities to seek approval forrecognition of eligibility for such benefits. If determined to be ineligible for treaty benefits, suchShareholder may become subject to higher the PRC tax rates on dividends of our Shares.

Since it is uncertain whether our Company will be considered as a PRC residententerprise, dividend payable to our Shareholders with respect to our Shares, or the gain ourShareholders may realise from the transfer of their Shares, may be treated as income derivedfrom sources within the PRC and be subject to the PRC tax. If our Company is required underthe EIT Law to withhold the PRC tax on dividend payable to foreign Shareholders, or if ourforeign Shareholders are required to pay the PRC tax on the transfer of their Shares, the valueof their investment in our Shares may be adversely affected.

Our Company is a holding company and our ability to pay dividend relies on dividendpayments from our subsidiaries

Our Company is a holding company and our business is substantially conducted throughour operating subsidiaries in the PRC. As a result, our ability to pay dividend depends ondividend and other distributions we receive from our PRC subsidiaries. If our subsidiaries incurdebts or losses, these may impair their ability to pay dividends or other distributions to ourCompany, which may in turn adversely affect our ability to pay dividends to our Shareholders.

The ability of our subsidiaries to pay any dividend in a given year to our Companydepends on the legal and regulatory requirements to which the relevant subsidiary is subject.In general, such subsidiaries may not declare and pay any dividend to our Company, if they donot have any distributable profits. The applicable PRC laws, rules and regulations also requireforeign-invested enterprises to set aside part of their net profit as statutory reserves. Thesestatutory reserves are not available for distribution as cash dividends. Limitations on the abilityof such subsidiaries to remit their after tax profits to our Company in the form of dividend orother distributions may adversely affect our ability to grow, to invest, to pay dividend andotherwise fund, and to conduct our business. There is no assurance that such subsidiaries willgenerate sufficient earnings and cash flow to pay dividend or otherwise distribute sufficientfunds to our Company to enable us to pay dividend to Shareholders.

In addition, restrictive covenants in bank credit facilities, joint venture agreements orother arrangements that members of our Group may enter into in the future may also restrictthe ability of such members to pay dividend or make distributions to our Company. Theserestrictions generally reduce the amount of dividends or other distributions our Company mayreceive from our subsidiaries, which in turn may impact on our Company’s ability to paydividend to our Shareholders.

RISK FACTORS

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Under the EIT Law, we may in the future be deemed as a Chinese residential enterprise

by the Chinese tax authorities. In addition, under the EIT Law, certain qualifying dividend

payments between Chinese resident enterprises are tax free. However, we are not sure as to

whether we will be deemed to be a Chinese resident enterprise, and that our subsidiaries

incorporated in the PRC or elsewhere do not need to pay dividend withholding income tax.

Uncertainties with respect to the PRC legal system and business environment may

materially and adversely affect our business and operations

A substantial portion of our business and operations are conducted in the PRC. Our

business in the PRC is subject to the PRC laws and regulations applicable to foreign

investment in the PRC. The PRC legal system is a civil law system based on written statutes.

Unlike in the common law system, prior cases have limited precedential value in deciding

subsequent cases in the civil law legal system. Additionally, PRC written statutes are often

principle oriented and require detailed interpretations by the enforcement bodies for their

application and enforcement. When the PRC government started its economic reforms in

1978, it began to build a comprehensive system of laws and regulations to regulate business

practices and the overall economic order of the country. The PRC has made significant

progress in the promulgation of laws and regulations dealing with business and commercial

affairs of various participants of the economy, involving foreign investment, corporate

organisation and governance, commercial transactions, taxation and trade. However, the

promulgation of new laws, changes in existing laws and abrogation of local regulations by

national laws may materially and adversely affect our business and financial condition.

Additionally, given the involvement of different enforcement bodies of the relevant rules and

regulations and the non-binding nature of prior court decisions and administrative rulings, the

interpretation and enforcement of PRC laws and regulations involve significant uncertainties

under the current legal environment and may also materially and adversely affect our


In addition, the significant progress in the promulgation of laws and regulations and

significant uncertainties involving in the interpretation and enforcement of PRC laws and

regulations may lead to the lack of transparency with the legal system in the PRC and increase

our risks exposed in relation to corruption, bribery and other unethical practices of local

government officials. We are subject to anti-bribery laws and regulations in the PRC that

generally prohibit companies and their intermediaries from making payments to government

officials for the purpose of obtaining or retaining business or securing any other improper

advantage. Although we have policies and procedures in place to ensure that we, our

employees and our agents comply with these anti-bribery laws and regulations, there is no

assurance that such policies or procedures will prevent our agents, employees and

intermediaries from engaging in such bribery, corruption or unethical activities. Failure to

comply with anti-bribery laws and regulations could disrupt our business and lead to severe

criminal and civil penalties, including criminal and civil fines, loss of our licences and permits,

suspension of our ability to do business with Chinese state-owned enterprises or exclusion

from participation in tenders. In addition, we could also be adversely affected by any allegation

that we have violated such laws and regulations.

RISK FACTORS

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We are exposed to foreign exchange rate fluctuations

We commenced our business operation in Southeast Asia in 2016. Since then, our

revenue generated from the Southeast Asian markets has increased steadily. Our customers

typically settle our payment in US dollars, RMB and BND for our projects in Brunei and settle

our payment in IDR for our projects in Indonesia. As such, we are exposed to foreign exchange

rate risk. In particular, as we expect that we will derive a reasonable amount of revenue from

our projects in Indonesia in the next two to three years, our Directors believe that our Group will

have increasing exposure to IDR going forward. The value of RMB is subject to changes in the

PRC government’s policies and depends, to a large extent, on domestic and international

economic and political developments. Due to international pressures on the PRC to allow more

flexible exchange rates for the RMB, the economic situation and financial market

developments in the PRC and abroad and the balance of payments situation in the PRC, the

PRC government has decided to proceed further with reform of the RMB exchange rate regime

and to enhance the RMB exchange flexibility. Any appreciation or depreciation in the value of

the RMB or other foreign currencies that our operations are exposed to will affect our business

in different ways. We cannot predict future exchange rate fluctuations, and such fluctuations

may materially and adversely affect our business, results of operations and financial condition.

In addition, changes in foreign exchange rates may have an impact on the value of, and any

dividends payable on, the Shares in HK dollar.

RISKS RELATING TO CONDUCTING BUSINESS IN SOUTHEAST ASIA

Our business operation in the Southeast Asian market is dependent on the general

economic conditions and policies of the Southeast Asian countries in which we operate,

especially dependent on the provision of utilities and/or infrastructure by the

governments or entities of these countries which may affect the port, waterway and

marine engineering industry in these countries

We are exposed to various risks associated with the economic conditions and policies in

the Southeast Asian countries in which we operate, including changes in economic condition

and foreign government regulations or policies, especially any limitations and restrictions on

foreign invested companies in conducting marine engineering and construction work. There is

no assurance that changes in economic conditions and policies will not materially and

adversely affect our business, results of operations and financial condition. Further, we are

especially dependent on the governments or entities of these Southeast Asian countries to

provide utilities and/or infrastructure. In the event that provision of utilities and/or infrastructure

is disrupted or terminated, the port, waterway and marine engineering industry in these

countries may be materially and adversely affected, which in turn, will result in the disruption

of our operations. We then may be required to temporarily pause our operation in these

countries and may not be able to secure new project contracts.

RISK FACTORS

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Unfamiliarity with local operation, market conditions and laws may materially andadversely affect our business, results of operations and financial condition

Our unfamiliarity and lack of understanding of local operation and market conditions, localtaxation, customs culture, practices and other laws, rules, regulations, standards and otherrequirements and risks of non-compliance with local laws, rules, regulations, standards andother relevant requirements may materially and adversely affect our business in SoutheastAsian market. There is no assurance that such unfamiliarity and/or lack of understanding willnot materially and adversely affect our business, results of operations and financial condition.

Lack of a well-developed legal system may result in us being unable to enforce ourcontractual rights in the markets in which we operate

As a result of our overseas operations in Southeast Asia, our contractual rights may besubject to the laws and regulations of the countries in which we operate. Lack of a well-developed and comprehensive legal system in the countries in which we operate may createdifficulties for us in enforcing our contractual rights. We cannot assure that we will be able toenforce our contractual rights in the Southeast Asian countries in which we operate, and ourfailure to enforce our contractual rights may materially and adversely affect our business,results of operations and financial condition.

Our business in Brunei and Indonesia, and other Southeast Asian countries should weexpand our operation there, operate under various permits, licences and/orqualifications and the loss of or failure to obtain or renew any or all of these permits orlicences may materially and adversely affect our business, results of operations andfinancial condition

Our business is subject to various government laws and regulations in the variouscountries in which we operate, including Brunei and Indonesia. Please refer to the sectionsheaded “Regulatory Overview” and “Business – Licences and permits” in this document formore details. These operating permits, licences and/or qualifications are granted, renewedand maintained upon our satisfactory compliance with, among others, the applicable criteriaset by the relevant governmental departments or organisations. Such criteria may includemaintenance of a sufficient project track record, maintenance of sufficient number of qualifiedpersonnel and compliance with safety regulations and environment protection regulations.These permits, licences and/or qualifications may only be valid for a limited period of time andmay be subject to periodic review and renewal by government authorities or relevantorganisations. In addition, the standards of compliance required in relation thereto maychange from time to time. There is no assurance that all our required permits, licences and/orqualifications can be maintained, obtained or renewed in a timely manner or at all. Anychanges in the existing government policies for the port, waterway and marine engineeringindustry in the countries in which we operate may result in our failure to obtain or maintain suchrelevant permits, licences and/or qualifications. If we are unable to renew or maintain therequired permits, licences and/or qualifications, we may be required to temporarily pause ouroperations and may not be able to secure new project contracts, which may materially andadversely affect our business, results of operations and financial condition.

RISK FACTORS

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We may be adversely affected by intensifying competition from other port, waterway

and marine engineering companies in the Southeast Asian market and if we are unable

to compete successfully against other competitors, our business, results of operations

and financial condition may be materially and adversely affected

According to Frost & Sullivan, we ranked second amongst all major Chinese port,

waterway and marine engineering contractors by revenue in Southeast Asia in 2017 and we

compete with a number of contractors in the Southeast Asian market including contractors

from the PRC, Japan and the US. For details, please refer to the section headed “Industry

Overview – The Port, waterway and marine engineering market in Southeast Asia –

Competitive landscape” in this document. Some of our competitors may have certain

advantages, including stronger brand names, greater access to capital, longer operating

history, longer and more established relationship with main contractors or project owners, and

greater marketing and other forms of resources. Further, some of the existing market players

have been listed on various stock exchange, which may give them an advantage in terms of

financing capability and reputation. New participants may enter the industry provided that they

possess all the various licences, resources, experience and qualifications required. There is

no assurance that we can compete successfully in the future. In the event that we are unable

to compete our competitors effectively, our business, results of operations and financial

condition will be materially and adversely affected.

Our current business operation in Southeast Asian market, especially in Indonesia and

Brunei, benefit from China’s Belt and Road Initiative, and there is no assurance that

China’s Belt and Road Initiative will continue or that it will not be cancelled in certain

Southeast Asian countries due to changes in their economic or political policies

For the two years ended 31 December 2016 and 2017 and the four months ended 30 April

2018, our revenue derived from our projects conducted in Brunei and Indonesia was

approximately RMB92.2 million, RMB443.5 million and RMB174.4 million, respectively. We

benefit from favourable policies adopted by the PRC government under China’s Belt and Road

Initiative. We believe that China’s Belt and Road Initiative has been instrumental in the growth

of our business in Brunei and Indonesia, and we expect to continue to benefit from China’s Belt

and Road Initiative and the business opportunities presented in connection with the economic

growth in the Southeast Asian countries in which we operate in. For more details of China’s

Belt and Road Initiative, please refer to the section headed “Industry Overview” in this

document. However, there is no assurance that China’s Belt and Road Initiative will continue

in future or that it will not be cancelled in certain Southeast Asian countries, especially Brunei

and Indonesia, due to changes in their economic or political policies. If this happens, our

business, results of operations and financial condition will be materially and adversely

affected.

RISK FACTORS

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Our business, results of operations and financial may be materially and adversely

affected by other factors, barriers to entry and/or risks that are not presently expected


30 April 2018, our revenue generated from our business operation in Southeast Asia

represented nil, approximately 7.3%, 31.4% and 64.9% of our total revenue for the same

period, respectively. Such revenue was mainly generated from our provision of port

infrastructure work and/or services in Brunei and Indonesia. In the foreseeable future, we

believe that we will continue to capture opportunities in the Southeast Asian market. However,

there may be other factors, barriers to entry or risks that are not presently expected in

Southeast Asia that may disrupt our operation or materially and adversely affect our business,

results of operations and financial condition. In the event that such other factors, barriers to

entry or risks that are not presently expected arise, there may be disruptions to our business

operation, and we may have to pause our operation and may not be able to secure new project

contracts. There is no assurance that our business, results of operations and financial

condition will not be materially and adversely affected.

In some of the countries in which we operate, the risks of corruption, bribery and other

unethical practices may result in a risk of delay in our works and may materially and

reversely affect our business, profitability and financial condition

In some of the Southeast Asian countries in which we operate, corruption is perceived to

exist amongst the local government bodies. The risks of corruption, bribery and other unethical

practices of local government officials in such countries and the lack of transparency within the

legal systems of such countries may be a hindrance to the government’s ability of these

countries to attract foreign investment, which in turn, may severely affect our operation of

business there. Furthermore, any failure of us to comply with local anti-corruption laws, rules

and regulations in some of the Southeast Asian countries in which we operate may materially

and adversely affect our reputation, business, results of operations and financial condition.

Our business operation may be disrupted by natural disasters in the Southeast Asian

countries in which we operate, which may result in a material and adverse impact on our

business operation

As a result of the nature of our business as a port, waterway and marine engineering

company, our projects are prone to natural disasters, such as earthquakes and flooding. Any

future occurrence of natural disasters in a country where we operate may materially and

adversely affect its economy and our business. There is no assurance that any future

occurrence of natural disasters in the Southeast Asia countries in which we operate will not

seriously disrupt our operation or those of our customers, which may materially and adversely

affect our business, results of operations and financial condition.

RISK FACTORS

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RISKS RELATING TO CONDUCTING BUSINESS IN BRUNEI

Our relatively higher gross profit margins generated from our operation in Bruneiduring the Track Record Period may not be sustainable

We commenced our business in Brunei in 2016. Except for realising gross loss margin forthe year ended 31 December 2016 due to us incurring higher initial costs in commencing ourport infrastructure projects in Brunei and conducted certain work that generally had a relativelylower gross profit margin, we realised gross profit margin for our operation in Brunei ofapproximately 12.2% and 16% for the year ended 31 December 2017 and the four monthsended 30 April 2018, respectively. Nevertheless, given that Brunei is a geographically smallcountry with limited demand for port infrastructure work, our relatively higher gross profitmargins generated from our operation in Brunei during the Track Record Period may not besustainable and indicative of our future operation results.

There is no assurance that the trust arrangement will be considered to be in compliancewith the relevant laws and regulations of Brunei in the future

We established Benteng Brunei in January 2016. As at the Latest Practicable Date, weheld 99% equity interest in Benteng Brunei and the remaining 1% equity interest was held intrust by the local company in Brunei. There is no guarantee that the relevant laws andregulations in Brunei will not change and our trust arrangement will continue to be legal andvalid. In such event, our business, results of operations and financial condition in relation toour operations in Brunei may be adversely affected.

We may be required to adjust our shareholding in Benteng Brunei through our trustarrangement so that we can conduct government port, waterway and marineengineering projects in Brunei in the future

Pursuant to the relevant laws and regulations in Brunei, there are different class ofrestrictions on a company with foreign shareholders to conduct government port, waterwayand marine engineering projects or work. By way of example, Classes 1 and 2 contractorswhich can undertake government contracts with a value of up to BND250,000 have to becompanies which are fully owned by Bruneian Malay nationals. Class 3 contractors which canundertake government contracts with a value between BND250,000 to BND500,000 have tobe companies which are 80% owned by Bruneian Malay nationals. Class 4 contractors whichcan undertake government contracts with a value between BND500,000 to BND1,500,000have to be 50% owned by Bruneian Malay nationals. Class 5 contractors which can undertakegovernment contracts with a value between BND1,500,000 to BND5,000,000 have to be atleast 30% owned by Bruneian Malay nationals. Class 6 contractors which can undertakegovernment contracts with a value of no less than BND5,000,000 have to be companies whichare at least 10% owned by Bruneian Malay nationals.

If in the future, we decide to undertake any government port, waterway and marineengineering project or work in Brunei, our current trust arrangement of Benteng Brunei may notbe appropriate and is required for adjustment. We cannot guarantee that we will able to

RISK FACTORS

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successfully adjust our trust arrangement of Benteng Brunei with our local partner or we will be

allowed to change our current trust arrangement at all according to the relevant laws and

regulations in Brunei at that time. If we cannot adjust our shareholding in Benteng Brunei, our

business, results of operations and financial condition in Brunei may be materially and

adversely affected.

RISKS RELATING TO CONDUCTING BUSINESS IN INDONESIA

We had certain historical non-compliances in relation to our business operation in

Indonesia during the Track Record Period

During the Track Record Period, we had certain unintentional non-compliances in relation

to our Benteng Indonesia, including (i) some contracts in relation to our incorporation and port

infrastructure project of Benteng Indonesia were not written in Indonesian language as

required by Article 31 of Law No. 24 Year 2009 on National Flag, Language, Emblem and

Song; (ii) Benteng Indonesia did not possess the certificates for certain heavy equipment,

including tractor head, mix truck and wheel loader as required by Regulation of Minister of

Manpower Number PER.04/MEN/1985, and did not possess the certificates for our heavy

equipment operators as required by Regulation of Minister of Manpower Number:

PER.09/MEN/VII/2010; and (iii) Benteng Indonesia did not have a company regulation as

required by Article 108 of Law Number 13 of 2003.

As confirmed by our Indonesian Legal Advisers, we have rectified all of the above

non-compliances and have been in compliance with the relevant laws and regulations in

Indonesia since then. Our Indonesian Legal Advisers are also of the view that the above

non-compliances shall not cause us to be exposed to any penalty or law enforcement by the

relevant authority in Indonesia, nor cause any adverse effect on our business operation in

Indonesia. For more details of our non-compliance of Benteng Indonesia, please refer to the

section headed “Business – Legal proceedings and regulatory compliance – Non-compliances

of Benteng Indonesia” in this document.

There is no assurance that the Contractual Arrangements will be considered to be in

compliance with the relevant laws and regulations of Indonesia in the future

Pursuant to relevant Indonesian laws, the maximum foreign ownership in an Indonesian

company that is engaged in the construction services is limited to 67%. As at the Latest

Practicable Date, Benteng Indonesia was held as to 67% by our Group and 33% by an

Indonesian company. However, there is no assurance that in the future the relevant laws and

regulations of Indonesia will not change and the ownership percentages will still be considered

to be in compliance with the then prevailing laws and regulations of Indonesia. On such

occasions, our business, results of operations and financial condition in Indonesia may be

materially and adversely affected.

RISK FACTORS

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We rely on the Contractual Arrangements to control and obtain economic benefits from

Benteng Indonesia, our operating entity in Indonesia, which may not be as effective in

providing operational control as direct ownership

Due to relevant Indonesian laws on the maximum foreign ownership in an Indonesian

company that is engaged in construction services is limited to 67%, we rely on the Contractual

Arrangements to control and obtain the economic benefits from the remaining 33% equity

interest in Benteng Indonesia currently held by our Indonesian partner, PTPB. As Benteng

Indonesia, our operating entity in Indonesia, is the holder of key licences required for our

operation in Indonesia, if the Contractual Arrangements are not as effective in exercising our

control over Benteng Indonesia as direct ownership, our business, results of operations and

financial condition may be materially and adversely affected. For more details of our key

licences in Indonesia and the Contractual Arrangements, please refer to the sections headed

“Business – Licences and permits” and “Trust and Contractual Arrangements – Our

Contractual Arrangements for Benteng Indonesia” in this document.

There are limitations when we exercise our rights to demand for and effect the transfer

of the 33% shareholding in Benteng Indonesia under our Contractual Arrangements

Due to the foreign ownership restriction under the relevant laws and regulations in

Indonesia, in the event of bankruptcy of PTPB, our Group will have to cause all of the shares

of Benteng Indonesia currently registered under the name of PTPB to be transferred to a third

party designated by our Group and such third party must also be an Indonesian citizen(s) or

legal entity fully owned by Indonesian citizen(s), and to procure such third party to take up and

hold all such shares subject to arrangements similar to that of the Contractual Arrangements.

In the event that our Group is unable to procure such third party to replace PTPB to take up the

shares subject to arrangements similar to that of the Contractual Arrangements and our Group

needs to take up those shares and becomes the registered shareholder of those shares, as

advised by our Indonesian Legal Advisers, (i) our Group may violate the Indonesian law which

imposes the foreign ownership restriction; (ii) Benteng Indonesia may not be able to renew or

amend its business licence; (iii) the relevant government authority may not process the

application for registration of change in the company’s shareholders composition, directors or

commissioners or articles of association when PTPB is legally required to register such

changes; and (iv) any transfer of shares of Benteng Indonesia that violates Indonesian laws

and regulations may be declared null and void by Indonesian courts in case a party applies to

the relevant Indonesian courts to nullify and void such transfers. In addition, such transfer of

shares may also be subject to substantial costs including professional fees which may be

incurred in preparing the relevant documentation and attending to the filing regarding such

transfers.

RISK FACTORS

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The Indonesian Shareholders as borrowers under the Contractual Arrangements may

have conflicts of interest or disputes with us, which may materially and adversely affect

our business

The Indonesian Shareholders as borrowers under the Contractual Arrangements may

have potential conflicts of interest or disputes with us. Although the Indonesian Shareholders

are proven to be trustworthy individuals, we cannot assure you that when conflicts of interest

or disputes arise, they will act in the best interests of Benteng Indonesia or that conflicts of

interest or dispute will be resolved in our favour. In the event of any such conflicts of interest

or dispute, the Indonesian Shareholders may breach or cause Benteng Indonesia to breach or

refuse to renew the Contractual Arrangements, which may affect our ability to consolidate the

control over and derive the economic benefits from the remaining 33% equity interest in

Benteng Indonesia held by the Indonesian Shareholder to our Group, although it will not affect

our Group’s absolute control as the majority shareholder of Benteng Indonesia. If we cannot

resolve any conflict of interest or dispute between us and the Indonesian Shareholders, we will

have to rely on legal proceedings, which can result in disruption to our business and subject us

to substantial uncertainty as to the outcome of such legal proceedings. These uncertainties

may impede our ability to enforce the Contractual Arrangements. If we are unable to resolve

any such conflicts or disputes, or if we experience significant delays or other obstacles as a

result of such conflicts or disputes, our operations could be severely disrupted, which will

materially and adversely affect our business, results of operations and financial condition.

Our Contractual Arrangements may be subject to scrutiny of tax authorities of

Indonesia and additional tax may be imposed if there is any change in laws or change in

the interpretation of laws or regulations by the tax authorities of Indonesia in the future

There is no assurance that there will not be any change in laws or regulations or change

in the interpretation of laws or regulations by tax authorities of Indonesia in the future which

may result in our Contractual Arrangement being scrutinised by the tax authorities and higher

tax rates or additional taxes being imposed on and incurred by PTPB in connection with our

Contractual Arrangements and thereby adversely affecting our business, results of operations

and financial condition.

We do not have any insurance coverage to cover our risks relating to our Contractual

Arrangements in Indonesia

We have not purchased nor do we maintain any insurance policy to cover any of the risks

relating to our Contractual Arrangements. In the event that our Contractual Arrangements are

held or declared to be illegal, invalid or not legally binding, or if we fail to enforce our rights

under our Contractual Arrangements, or if we fail to seek remedies against PTPB under our

Contractual Arrangements, we may not be adequately compensated for our losses, which may

materially and adversely affect our business, results of operations and financial condition.

RISK FACTORS

– 56 –


RISKS RELATING TO THE [REDACTED]

There has been no prior public market in Hong Kong for our Shares and their liquidity

and market price may be volatile

Prior to the [REDACTED], no public market existed for our Shares. The initial

[REDACTED] range to the public for our Shares is the result of negotiations between us and

the [REDACTED] on behalf of the [REDACTED], and the [REDACTED] may differ significantly

from the market price for our Shares following the [REDACTED]. There is no assurance that an

active trading market for our Shares will develop following the [REDACTED] or, if it does

develop, that it will be sustained or that the market price for our Shares will not decline below

the initial [REDACTED].

The price and trading volume of our Shares may be volatile, which could result in

substantial losses for investors purchasing our Shares in the [REDACTED]

Factors such as fluctuations in our sales, earnings, cash flows, new investments,

acquisitions or alliances, regulatory developments, additions or departures of key personnel,

or actions taken by competitors could cause the market price of our Shares or trading volume

of our Shares to change substantially and/or unexpectedly. In addition, stock prices have been

subject to significant volatility in recent years. Such volatility has not always been directly

related to the performance or condition of the specific companies whose shares are traded.

Such volatility, as well as general economic conditions, may adversely affect the prices of our

Shares, and as a result investors in our Shares may incur substantial losses.

Our Controlling Shareholder has substantial influence over us and the Controlling

Shareholder’s interests may not be aligned with the interests of our other Shareholders

Immediately after the [REDACTED], our Controlling Shareholder will own in total

[REDACTED]% of our issued share capital (assuming no exercise of the [REDACTED] and

without taking into account any Shares that may be allotted and issued upon the exercise of

any option which may be granted under the Share Option Scheme). Our Controlling

Shareholder will be in a position to exert significant influence over our affairs, and will be able

to significantly influence the outcome of any Shareholders’ resolution, irrespective of how

other Shareholders may vote. The interests of our Controlling Shareholder may not

necessarily be aligned with those of our independent Shareholders. Our Controlling

Shareholder may cause us to take actions that are not in the interests of us or our other

Shareholders. In the event that the interests of our Controlling Shareholder conflict with those

of our other Shareholders, or if our Controlling Shareholder chooses to cause us to pursue

objectives that would conflict with the interests of our other Shareholders, such other

Shareholders could be left in a disadvantageous position by such actions caused by our

Controlling Shareholder.

RISK FACTORS

– 57 –


Future sale or major divestment of Shares by our Controlling Shareholders could

materially and adversely affect the prevailing market price of our Shares

Our Shares held by our Controlling Shareholder are subject to certain lock-up periods, the

details of which are set out in the section headed “[REDACTED]” in this document. However,

there is no assurance that after the restrictions of the lock-up periods expire, our Controlling

Shareholder will not dispose of any Shares. Sale of substantial amounts of our Shares in the

public market, or the perception that these sales may occur, could materially and adversely

affect the prevailing market price of our Shares.

Our Shareholders may experience dilution if we issue additional Shares in the future

We may need to raise additional funds to finance expansion or acquisitions relating to our

existing operations in the future. If additional funds are raised through the issuance of new

equity or equity-linked securities of our Company other than on a pro-rata basis to our existing

Shareholders, their percentage ownership may be diluted or such new securities may confer

rights and privileges that take priority over those conferred by our Shares.

Difficulties in protecting your interests under the laws of the Cayman Islands

Our corporate affairs are governed by, among other things, our Memorandum and Articlesand the Companies Law and common law of the Cayman Islands. The rights of Shareholdersto take action against our Directors, actions by minority shareholders and the fiduciaryresponsibilities of our Directors to us under Cayman Islands law are to a large extent governedby the common law of the Cayman Islands. The common law of the Cayman Islands is derivedin part from comparatively limited judicial precedent in the Cayman Islands as well as that fromEnglish common law, which has persuasive, but not binding, authority on a court in theCayman Islands. The laws of the Cayman Islands relating to the protection of the interests ofminority shareholders differ in some respects from those in other jurisdictions.

No undue reliance should be placed on the industry statistics derived from officialgovernment publications contained in this document

Certain statistics, data, forecasts and other information presented in the section headed“Industry Overview” and elsewhere in this document including those relating to the PRC andSoutheast Asia and their port, waterway and marine engineering industry have been derivedfrom various publications and industry-related sources prepared by governmental officials orIndependent Third Parties. Neither the [REDACTED] nor any of their affiliates or advisers, norwe or any of our affiliates or advisers has verified the accuracy of the information contained insuch sources. Therefore our Group makes no representation as to the accuracy of suchstatistics, data, forecasts and other information, which may not be consistent with otherinformation compiled within or outside the PRC and Southeast Asia. As a result, the industryinformation and statistics contained herein may not be accurate and should not be undulyrelied upon for your investment in our Company or otherwise.

RISK FACTORS

– 58 –


Investors should read the entire document carefully and we strongly caution theinvestors not to place any reliance on any information contained in press articles orother media regarding us and the [REDACTED], including, in particular, any projections,valuations or other forward-looking information

Prior or subsequent to the publication of this document, there had been or may be pressand media coverage regarding us and the [REDACTED]. We have not authorised thedisclosure of any such information in the press or media, the financial information, financialprojections, valuations and other information about us contained in such unauthorised pressand media coverage may not truly reflect what is disclosed in this document or the actualcircumstances, and we do not accept responsibility for the accuracy or completeness of suchpress articles or other media coverage. We make no representation as to the appropriateness,accuracy, completeness or reliability of any of the projections, valuations or other forward-looking information about us or the [REDACTED], or of any assumptions underlying suchprojections, valuations or other forward-looking information included in or referred to by thepress articles or other media. To the extent that any such information appearing in the pressor media is inconsistent or in conflict with the information contained in this document or theactual circumstances, we shall not be liable on the same. Accordingly, prospective investorsare cautioned to make their investment decisions on the basis of the information contained inthis document only and not to rely on any other information.

RISK FACTORS

– 59 –


In preparation for the [REDACTED], we have sought the following waivers from strict

compliance with the relevant provisions of the Listing Rules:

MANAGEMENT PRESENCE IN HONG KONG

According to Rule 8.12 of the Listing Rules, an issuer must have sufficient management

presence in Hong Kong. This normally means that at least two of its executive directors must

be ordinarily resident in Hong Kong.

Our principal business and operations are primarily located, managed and conducted in

the PRC through our main PRC operating subsidiary, Third Harbor Maritime. None of our

executive Directors is a Hong Kong permanent resident or is ordinarily based in Hong Kong,

and they will continue to be based in the PRC after [REDACTED]. It would be practically

difficult and commercially infeasible for our Company to relocate two of our executive Directors

to Hong Kong or appoint additional executive Directors who are ordinarily resident in Hong

Kong. As a result, our Company does not, and will not, in the foreseeable future, have a

sufficient management presence in Hong Kong as required under Rule 8.12 of the Listing

Rules.

Accordingly, we have applied to the Stock Exchange for, and the Stock Exchange has

granted us, a waiver from strict compliance with the requirements under Rule 8.12 of the

Listing Rules on the following conditions:

(a) our Company has appointed two authorised representatives pursuant to Rule 3.05 of

the Listing Rules, who will act as our principal channel of communication with the

Stock Exchange. The two authorised representatives appointed are Ms. Wan Yun

(萬雲), our executive Director and Mr. Wang Lijiang (王利江), our executive Director

and joint company secretary. Each of the two authorised representatives is

authorised to communicate on behalf of our Company with the Stock Exchange;

(b) any meeting between the Stock Exchange and our Directors will be arranged

through our authorised representatives or the compliance adviser of our Company or

directly with our Directors within a reasonable time frame. We will inform the Stock

Exchange promptly in respect of any changes in our authorised representatives and

our compliance adviser;

(c) each of our authorised representatives will be available to meet with the Stock

Exchange within a reasonable period of time upon the request of the Stock

Exchange and will be readily contactable by telephone, facsimile and email;

(d) each of our authorised representatives has means to contact all members of our

Board (including our independent non-executive Directors) promptly at all times as

and when the Stock Exchange wishes to contact our Directors for any matters. To

enhance the communication between the Stock Exchange, our authorised

representatives and our Directors, we have implemented a policy that (a) each

WAIVERS FROM STRICT COMPLIANCE WITH THE LISTING RULES

– 60 –


Director will provide their respective office phone numbers, mobile phone numbers,facsimile numbers and email addresses to our authorised representatives; and (b)all of our Directors and authorised representatives will provide, if available, theiroffice phone numbers, mobile phone numbers, facsimile numbers and emailaddresses to the Stock Exchange. In the event that a Director expects to travel or isout of office, he/she will provide the phone number of the place of his/heraccommodation to our authorised representatives;

(e) the Directors, who are not ordinarily resident in Hong Kong, have confirmed that theypossess or can apply for valid travel documents to visit Hong Kong and are able tomeet with the Stock Exchange within a reasonable period of time;

(f) in compliance with Rule 3A.19 of the Listing Rules, we have appointed Orient Capital(Hong Kong) Limited as our compliance adviser who will, among other things, inaddition to our two authorised representatives, act as an additional channel ofcommunication with the Stock Exchange for the period commencing from the[REDACTED] and ending on the date on which our Company complies with Rule13.46 of the Listing Rules in respect of its financial results for the first full financialyear commencing after the [REDACTED]. Orient Capital (Hong Kong) Limited willhave full access at all times to our authorised representatives, Directors and seniormanagement; and

(g) we will also retain legal advisers to advise on on-going compliance requirements,other issues arising under the Listing Rules and other applicable laws andregulations of Hong Kong after [REDACTED].

JOINT COMPANY SECRETARIES

Rule 8.17 of the Listing Rules provides that an issuer must appoint a company secretarywho satisfies Rule 3.28 of the Listing Rules. Pursuant to Rule 3.28 of the Listing Rules, thecompany secretary must be a person who, by virtue of his or her academic or professionalqualifications or relevant experience is, in the opinion of the Stock Exchange, capable ofdischarging the functions of company secretary. The Stock Exchange considers the followingacademic or professional qualifications to be acceptable:

(i) a member of The Hong Kong Institute of Chartered Secretaries;

(ii) a solicitor or barrister (as defined in the Legal Practitioners Ordinance (Chapter 159of the Laws of Hong Kong)); and

(iii) a certified public accountant (as defined in the Professional Accountants Ordinance(Chapter 50 of the Laws of Hong Kong)).

In assessing “relevant experience”, the Stock Exchange will consider the individual’s:

(i) length of employment with the issuer and other issuers and the roles he played;


– 61 –


(ii) familiarity with the Listing Rules and other relevant laws and regulations including

the Securities and Future Ordinance, Companies Ordinance, Companies (Winding

Up and Miscellaneous Provisions) Ordinance and the Takeovers Code;

(iii) relevant training taken and/or to be taken in addition to the minimum requirement

under Rule 3.29 of the Listing Rules; and

(iv) professional qualifications in other jurisdictions.

We have appointed Mr. Wang Lijiang (王利江) and Mr. Wong Yu Kit of SWCS Corporate

Services Group (Hong Kong) Limited as the joint company secretaries of our Company. Mr.

Wong Yu Kit is an associate member of The Hong Kong Institute of Chartered Secretaries, and

is qualified to act as a joint company secretary of the Company. On the other hand, Mr. Wang

Lijiang (王利江) is not a certified public accountant as defined in the Professional Accountants

Ordinance, a member of the Hong Kong Institute of Chartered Secretaries, nor a solicitor or

barrister as defined in the Legal Practitioners Ordinance, as required under Rules 3.28 and

8.17 of the Listing Rules. However, our Directors consider that Mr. Wang Lijiang (王利江), by

virtue of his background and experience, is capable of discharging the functions of a joint

company secretary. Mr. Wang Lijiang (王利江) joined the Group in March 2014 and is currently

our executive Director. Mr. Wang Lijiang (王利江) therefore has a thorough understanding of

the daily operations, internal administration and finance of the Group. Mr. Wang Lijiang (王利江) has been actively involved in our [REDACTED] since the preparatory period and has been

assisting the Board on governance matters. Mr. Wang Lijiang (王利江) also attended the

training seminar regarding responsibility of directors of listed companies delivered by our legal

advisers as to Hong Kong laws to the Directors.

Accordingly, we have applied to the Stock Exchange for, and the Stock Exchange has

granted, a waiver from strict compliance with the requirements under Rules 3.28 and 8.17 of

the Listing Rules. The waiver is valid for an initial period of three years from the [REDACTED].

The waiver is granted on condition that we engage Mr. Wong Yu Kit of SWCS Corporate

Services Group (Hong Kong) Limited, who possesses all the requisite qualifications required

under Rule 3.28 of the Listing Rules, as a joint company secretary, to assist Mr. Wang Lijiang

(王利江) in the discharge of his duties as a company secretary and in gaining the “relevant

experience” as required under Rule 3.28 of the Listing Rules. The waiver will be revoked

immediately if Mr. Wong Yu Kit, during the three-year period, ceases to provide assistance to

Mr. Wang Lijiang (王利江). Before the end of the three-year period, our Company would liaise

with the Stock Exchange. Our Company should then be able to demonstrate to the satisfaction

of the Stock Exchange that Mr. Wang Lijiang (王利江), having had the benefit of Mr. Wong Yu

Kit’s assistance for three years, would have acquired the relevant experience within the

meaning of Rule 3.28 of the Listing Rules so that a further waiver would not be necessary.

For further details about the qualifications and experience of Mr. Wang Lijiang (王利江)

and Mr. Wong Yu Kit, please refer to the section headed “Directors, Senior Management and

Employees” in this document.


– 62 –


CONTINUING CONNECTED TRANSACTIONS

We have entered into, and are expected to continue after the [REDACTED], certain

transactions which will constitute non-exempt continuing connected transactions under

Chapter 14A of the Listing Rules. Accordingly, we have applied for, and the Stock Exchange

has granted to us, waivers from strict compliance with (i) the announcement, circular and

independent shareholders’ approval requirements, (ii) the annual cap requirement, and/or (iii)

the requirement of limiting the term of the continuing connected transactions (as applicable)

under Chapter 14A of the Listing Rules in respect of such non-exempt continuing connected

transactions.

For further details, please refer to the section headed “Connected Transactions” in this

document.


– 63 –


[REDACTED]

INFORMATION ABOUT THIS DOCUMENT AND THE [REDACTED]

– 64 –


[REDACTED]


– 65 –


[REDACTED]


– 66 –


[REDACTED]


– 67 –


[REDACTED]


– 68 –


DIRECTORS

Name Address Nationality

Executive Directors

Mr. Wang Shizhong(王士忠)(Chairman)

Room 1101, No. 7, 99 LaneJin He RoadShanghaithe PRC

Chinese

Mr. Wang Xiuchun(王秀春)

No. 120, Lane 828Guoquanbei Road, Baoshan DistrictShanghaithe PRC

Chinese

Ms. Wan Yun(萬雲)

Room 2304, No. 1, 383 LaneRuihong Road, Hongkou DistrictShanghaithe PRC

Chinese

Mr. Wang Lijiang(王利江)

Room 802, No. 34, 1238 LaneYi Xian Road, Baoshan DistrictShanghaithe PRC

Chinese

Ms. Olive Chen No. 15, Dafosi East StreetDongcheng DistrictBeijingthe PRC

Norwegian

Independent non-executive Directors

Mr. Wang Hongwei(王洪衛)

Room 402, No. 36, 99 LaneEast Guoquan RoadShanghaithe PRC

Chinese

Mr. How Sze Ming(侯思明)

Flat B, 59/F, Block 8Lake Silver, 599 Sai Sha RoadMa On Shan, New TerritoriesHong Kong

Chinese

Mr. Sun Dajian(孫大建)

Room 1701, No. 3, 655 LaneHutai Road, Zhabei DistrictShanghaithe PRC

Chinese

Please refer to the section headed “Directors, Senior Management and Employees” inthis document for further information of our Directors.

DIRECTORS AND PARTIES INVOLVED IN THE [REDACTED]

– 69 –


PARTIES INVOLVED IN THE [REDACTED]

Sole Sponsor Orient Capital (Hong Kong) Limited

Rooms 1, 1A, 6-8, 27/F &

Rooms 2803-07, 28/F

Wing On House

71 Des Voeux Road Central

Central

Hong Kong

[REDACTED]


– 70 –


[REDACTED]


– 71 –


[REDACTED]


– 72 –


[REDACTED]

Legal advisers to our Company As to Hong Kong law:

Eversheds Sutherland

21/F Gloucester Tower

The Landmark

15 Queen’s Road Central

Hong Kong

As to PRC law:

Allbright Law Offices

9, 11, 12/F Shanghai Tower

501 Yincheng Middle Road

Pudong New Area

Shanghai 200120

the PRC

As to Cayman Islands law:

Harney Westwood & Riegels

3501 The Center

99 Queen’s Road Central

Hong Kong

As to Indonesian law:

Hutabarat, Halim & Rekan

20/F, DBS Bank Tower

Ciputra World 1

Jl. Prof. DR. Satrio Kav., 3-5

Jakarta 12940

Indonesia

As to Brunei law:

Ridzlan Lim Advocates & Solicitors

Units 6 & 7, Block L

Bangunan Pengkalan Gadong

Jalan Tungku/Batu Bersurat

Gadong BE3519

Brunei Darussalam


– 73 –


Tax adviser to our Company Russell Bedford Hong Kong

Room 1708, Dominion Centre

43-59 Queen’s Road East

Wanchai

Hong Kong

Legal advisers to Sole Sponsor

[REDACTED]

[REDACTED]

Auditor and reporting Accountant PricewaterhouseCoopers

Certified Public Accountants

22/F, Prince’s Building

Central

Hong Kong

Compliance adviser Orient Capital (Hong Kong) Limited

Rooms 1, 1A, 6-8, 27/F &

Rooms 2803-07, 28/F

Wing On House

71 Des Voeux Road Central

Central

Hong Kong

Industry consultant Frost & Sullivan (Beijing) Inc.,

Shanghai Branch Co.

1018, Tower B

Greenland Hui Centre

500 Yunjin Road

Shanghai 200232

the PRC


– 74 –


[REDACTED]


– 75 –


Principal place of business andheadquarters in the PRC

5/F, Tower 172816 Yixian RoadBaoshan DistrictShanghaithe PRC

Registered address Harneys Fiduciary (Cayman) Limited4th Floor, Harbour Place103 South Church StreetPO Box 10240Grand CaymanKY1-1002Cayman Islands

Company’s website www.shbt-china.com

(information contained in this website doesnot form part of this document)

Place of business in Hong Kong 40th Floor, Sunlight TowerNo. 248 Queen’s Road EastWanchaiHong Kong

Joint company secretaries Mr. Wang Lijiang (王利江)Room 802, No. 341238 LaneYi Xian RoadBaoshan DistrictShanghai, the PRC

Mr. Wong Yu Kit (黃儒傑) (HKICS)40th Floor, Sunlight TowerNo. 248 Queen’s Road EastWanchaiHong Kong

Authorised representatives Mr. Wang Lijiang (王利江)Room 802, No. 341238 LaneYi Xian RoadBaoshan DistrictShanghai, the PRC

Ms. Wan Yun (萬雲)Room 2304, No. 1383 LaneRuihong RoadHongkou DistrictShanghai, the PRC

CORPORATE INFORMATION

– 76 –


Audit committee Mr. Sun Dajian (孫大建) (Chairman)

Mr. How Sze Ming (侯思明)

Mr. Wang Hongwei (王洪衛)

Remuneration committee Mr. How Sze Ming (侯思明) (Chairman)

Mr. Sun Dajian (孫大建)

Mr. Wang Hongwei (王洪衛)

Nomination committee Mr. Wang Hongwei (王洪衛) (Chairman)

Mr. Sun Dajian (孫大建)

Mr. How Sze Ming (侯思明)

[REDACTED]

Principal Banks Bank of Communications, Shanghai

Sanmenlu Sub-branch

488 Sanmen Road

Shanghai

The PRC

CORPORATE INFORMATION

– 77 –


This section contains information and statistics relating to the PRC economy

and the industry in which we operate. We have derived such information and data

partly from publicly available government and other third-party sources, which

have not been independently verified by us, the Sole Sponsor, the [REDACTED], the

[REDACTED], the [REDACTED], any of the [REDACTED] or any of our or their

respective directors, officers, representatives or affiliates. Our Directors have

taken reasonable care in the reproduction of such information, which may not be

consistent with other information compiled within or outside the PRC. We

commissioned Frost & Sullivan, an independent market research firm, as an

industry consultant to prepare an industry research report (the “Frost & Sullivan

Report”). We believe that the sources of the information in this section are

appropriate sources for such information and have taken reasonable care in

extracting and reproducing such information. We have no reason to believe that

such information is false or misleading or that any fact has been omitted that would

render such information false or misleading.

Unless otherwise specified, the market and industry information and data

relating to the global and PRC markets for port, waterway and marine engineering

markets in this section has been derived from the Frost & Sullivan Report.

SOURCE OF INFORMATION

We commissioned Frost & Sullivan to conduct an analysis of port, waterway and marine

engineering markets in the PRC and Southeast Asia and other economic data and to prepare

the Frost & Sullivan Report. We have agreed to pay a fee of RMB500,000 for the Frost &

Sullivan Report, which will be paid prior to the [REDACTED]. Our Directors are of the view that

the payment of the fee does not affect the fairness of conclusions drawn in the Frost & Sullivan

Report.

Frost & Sullivan is an independent global market research and consulting firm founded in

1961 and based in the United States. It offers industry research and market strategies and

provides growth consulting and corporate training. The Frost & Sullivan Report includes both

historical and forecast information on the port, waterway and marine engineering markets in

the PRC and Southeast Asia and other economic data. To prepare the Frost & Sullivan Report,

Frost & Sullivan undertook both primary and secondary independent research through various

resources within the port, waterway and marine engineering markets in the PRC and

Southeast Asia. Primary research includes interviewing industry insiders, competitors,

downstream customers and recognised third-party industry associations. Secondary research

includes reviewing corporate annual reports, databases of relevant official authorities,

independent research reports and publications, as well as the exclusive database established

by Frost & Sullivan over the past decades. Frost & Sullivan has adopted the following primary

assumptions while compiling and preparing the Frost & Sullivan Report: (i) the social,

economic and political conditions in the PRC and Southeast Asia will remain stable during the

forecast period; (ii) government policies on port, waterway and marine engineering industry in

INDUSTRY OVERVIEW

– 78 –


the PRC will remain unchanged during the forecast period; and (iii) the port, waterway andmarine engineering market in the PRC will be driven by the development of specialised wharfs,land reclamation programme, new energy construction and upgrade and expansion of existingport facilities. Frost & Sullivan has also obtained the figures for the estimated total market sizefrom historical data analysis plotted against the macroeconomic data as well as the industrykey drivers. Our Directors confirm that, after making reasonable enquiries, there have notbeen any material adverse changes to the market information set out in the Frost & SullivanReport since the date of such report which may qualify, contradict or have an impact on theinformation contained in this section.

INTRODUCTION OF PORT, WATERWAY AND MARINE ENGINEERING MARKET

Port, waterway and marine engineering work refers to the construction and installation ofstructures and facilities in river and sea areas. It can be divided into three main segments,namely: (i) port infrastructure; (ii) waterway engineering; and (iii) marine engineering.

The following chart generally illustrates the segmentation of port infrastructure, waterwayengineering and marine engineering.

Major Types of ProjectsSegments Major Downstream Applications

Port trade and logistics

Energy and chemical industry

Power industryPort, waterway and marine engineering

Shipbuilding industryWaterwayengineering

Waterway passengertransport

Others

Coastal engineering

Offshore engineering

Desalination engineering

Ocean energy exploitation

Offshore oil engineering

Marine engineering

Port engineering: wharf construction,

port earthwork, port and offshore work,

breakwater and revetment construction,

land yard construction, shipyard

construction, slipway construction, etc.

Port and navigation facilities: port

berthing facilities, port cargo handing

facilities, docking facilities, offshore

beaconing facilities, channel facilities

Waterway dredging

Land reclamation

Others

Port infrastructure

Source: Frost & Sullivan

THE PORT, WATERWAY AND MARINE ENGINEERING MARKET IN THE PRC

Overview of port, waterway and marine engineering market in the PRC

The market size of the PRC port , waterway and marine engineering market in the terms

of revenue fluctuated between 2012 and 2017 from approximately RMB98.8 billion in 2012 to

approximately RMB93.7 billion in 2017, representing a CAGR of approximately -1.1% for the

same period. After years of rapid development in 2000s, the port, waterway and marine

engineering industry in the PRC encountered certain decline in 2014. In recent years, the PRC

port, waterway and marine engineering industry has recovered significantly. Since the

INDUSTRY OVERVIEW

– 79 –


development of sea and river transportation is still a strategic focus by the PRC government,

the construction of new ports, especially specialised wharfs, and improvement and expansion

of existing ports will help to keep the PRC port, waterway and marine engineering market on

a relatively stable business scale in the foreseeable future. It is expected that the PRC port,

waterway and marine engineering market will grow to approximately RMB113.6 billion in 2022,

indicating a CAGR of approximately 3.9% from 2017 to 2022. The chart below illustrates the

historical and projected PRC port, waterway and market engineering market in terms of

revenue from 2012 to 2022:

Market size of port, waterway and marine engineering market

by revenue (the PRC), 2012-2022E

0

20

2012 2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E 2022E

40

60

80

100

120

140

RMB Billion

Marine Engineering Waterway Engineering Port Infrastructure

29.5

98.8107.2

84.3

93.7

104.7

93.797.3

101.1105.1

109.2113.6

30.7

25.929.7

26.9

30.3 30.731.2

31.732.1

32.6

66.072.8

55.7 60.974.1

60.4 63.4 66.6 69.9 73.4 77.1

3.33.6

2.8

3.0

3.7

3.03.2

3.33.5

3.73.9


Key downstream industries of port, waterway and marine engineering market in the PRC

The table below illustrates the key downstream industries of PRC port, waterway and

marine engineering market:

Downstream Industry Description

Electric power industry In China, the fixed asset investments in electric power

industry have increased from approximately RMB739

billion in 2012 to approximately RMB828 billion in 2017

at a CAGR of approximately 2.3%, driving the growth

of cumulative installed capacity of electric power at a

approximately CAGR of 9.6%. Port and waterway

facilities are crucial for supplies of fuels and equipment

for power plants. The continuous development of

electric power industry stimulates the demand for

expansion and new construction of port and waterway

facilities.

INDUSTRY OVERVIEW

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Downstream Industry Description

Shipping industry The cargo throughput volume by water increased from

approximately 4.6 billion metrics tons in 2012 to

approximately 6.7 billion metrics tons in 2017 with a

CAGR of approximately 7.9%. Backed by the

continuous growth of the PRC economy, the cargo

throughput volume by water is expected to grow at a

CAGR of 4.9% from 2017 to 2022. The passenger

volume by water maintained stable in the past few

years and is expected to grow at a higher CAGR of

approximately 2.4% from 2017 to 2022, driven by

increasing domestic and cross-border travel and

developing water transportation infrastructure. The

continuous development of cargo and passenger

transportation by water in China will stimulate the

expansion of port and waterway engineering industry.

Energy industry The primary energy consumption in the PRC increased

from approximately 2,735 million tonne of oil

equivalent in 2012 to approximately 3,123 million TOE

in 2017 at a CAGR of 2.7%. China is the biggest

energy consumer and also the biggest energy importer

in the world. The import volume of crude oil and

liquefied natural gas increased at CAGRs of

approximately 8.5% and 21.4% from 2012 to 2017,

respectively. The development of import and export

trade of energy industry in China is driving the demand

for specialised wharfs and waterway facilities.

Chemical industry The fixed asset investment in chemical industry in the

PRC increased at a CAGR of approximately 6.3% from

2012 to 2017. Caused by regional integration in

chemical industry, the annual addition of specialised

wharfs for liquid chemical industry (>10,000 tonnage)

experienced slight decrease during 2012 and 2015.

With recovery of liquid chemical industry and

completion of some major chemical port projects, the

number of new specialised wharfs for liquid chemical

increased in 2017. With the development of export and

import of chemicals, the port and waterway

construction for chemical industry will gain resilience

in the future.

INDUSTRY OVERVIEW

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Price analysis of raw materials

The principal raw materials for conducting port, waterway and marine engineering work

and/or services include steel, cement and sand. The price of steel experienced rebound in

2016 after a continuous slump from 2012 to 2015 due to the gradual accomplishment of

structural reform in steel industry and is expected to increase at a moderate rate in the future.

The price of cement also declined in 2015 and recovered in 2016 and 2017. The average price

of cement in 2017 was approximately 37.4% higher than that in 2016. The price of sand also

experienced rebound in 2016 and 2017 after the decline in 2014 and 2015.

The labour cost in construction industry has been rising in recent years and is expected

to keep increasing with rising GDP per capita and improving living standards in the PRC within

the coming years.

Price of raw materials (the PRC), 2012 to 2017

0

500

1,000

2012

3,670.0

78.8 84.0 83.8 64.5 58.8 96.9

311.2 313.6 295.7 225.0308.6

423.9

3,440.0

2,670.0

1,890.0

3,150.0

4,452.0

2013 2014 2015 2016 2017

1,500

2,000

2,500

3,000

3,500

4,000

4,500

RMB per MT

Steel

Portland Composite Cement

Sand

Price of labour cost (the PRC), 2012 to 2017

0

2012 2013 2014 2015 2016 2017

10

20

30

40

50

60

Thousand RMB

Average Annual Pay of Construction Workers

36.5

42.145.8

48.952.1

57.5

Note: Price of raw materials includes VAT


INDUSTRY OVERVIEW

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Key barriers to entry

Qualification barrier. Qualification requirements of port, waterway and marine

engineering companies are rigorous. The MOHURD has listed the companies which meet the

Qualification Standards of Construction for Main Contractor which is required to conduct

relevant construction work. To obtain the qualification, the company has to meet certain

requirements in areas of the amount of net assets owned by the company, the number of

certificated engineers and experience in relevant completed construction projects, etc.

Without relevant project experiences, newcomers can hardly obtain the qualification, which in

turn restrict them from accumulating project experience.

Experiences barrier. Port facility is usually a prerequisite part of a larger construction

project such as power plants and factories, so the property owner is highly concerned about

the quality and timeliness of the port construction. Therefore, successful engineering

experiences and good track records are essential and highly valued in bidding process for port

and waterway engineering projects. Existing players who accumulated rich experiences gain

a significant advantage.

Capital investment barrier. The upfront capital investment of entering the market is

huge. To participate in the port, waterway and marine engineering projects, the contractors

have to purchase and maintain various kinds of equipment, such as pile driving barges,

dredgers and concrete mixing ships, which usually cost hundreds of millions. New entrants

with a lack of sufficient capital will find it hard to compete in the market.

Talents barrier. For port, waterway and marine engineering companies, qualified talents

such as national registered qualified engineers, experienced project managers and senior

mechanics are highly sought after due to the challenges and complexities of port and waterway

engineering projects. The challenges in training or hiring the sufficient number of talents are

one of the barriers to enter the market.

Competitive landscape

In the PRC, port, waterway and marine engineering market is mature and strictly

regulated. Generally, competition factors include construction experience, technology and

talents, cost and quality control and customer relations.

The port, waterway and marine engineering market in the PRC is concentrated and the

total market share of top 10 contractors accounted for approximately 89.9% of the market in

2017 in terms of revenue. We ranked ninth in the PRC port, waterway and marine engineering

industry with a market share of 1.0% in terms of revenue in 2017.

Companies A, B, C, D, E, F, G, H, J, K and M are the Chinese state-owned contractors.

Company A is the largest and dominant contractor in the port, waterway and marine

engineering market in the PRC. Companies I, L and N are major non-state-owned contractors.

INDUSTRY OVERVIEW

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The table below illustrates the market share of the major players in the PRC port,

waterway and marine engineering industry by revenue in 2017:

Market share of the major port, waterway and

marine engineering contractors

by revenue (the PRC), 2017

Rank Company Name Revenue

Market

Share Rank Company Name Revenue

Market

Share

(RMB Billion) (RMB billion)

1 Company A 61.5 65.7% 9 Our Company 1.0 1.0%

2 Company B 4.4 4.7% 10 Company I 1.0 1.0%

3 Company C 4.3 4.6% 11 Company J 0.9 1.0%

4 Company D 4.0 4.3% 12 Company K 0.9 1.0%

5 Company E 3.4 3.6% 13 Company L 0.7 0.7%

6 Company F 1.8 1.9% 14 Company M 0.5 0.5%

7 Company G 1.5 1.6% 15 Company N 0.4 0.4%

8 Company H 1.4 1.5% Others 6.0 6.6%

Total market size: 93.7 100.0%


The Chinese state-owned contractors occupy over 90% market share of the PRC port,

waterway and marine engineering market in terms of revenue. As at the Latest Practicable

Date, there were only 12 non-state-owned contractors in the PRC which have obtained the

first-grade general contractor qualification certificate for conducting port, waterway and

marine engineering business in the PRC.

The Company’s key advantages over its competitors

Differentiation and “Going-out” strategy. The Company has set clear development

strategies of differential competition against large-scale competitors and being one of

pioneers to expand business to Southeast Asia region following One Belt One Road Initiative,

which aims to establishing economic land belt that includes countries on the original Silk Road

as well as a maritime road that links China’s port facilities with the African coast and has

provided the company with tremendous business opportunities in the Southeast Asian

markets.

INDUSTRY OVERVIEW

– 84 –


Advanced qualification. The company is one of the few private enterprises possessing

the first-grade general contractor qualification certificate for conducting port, waterway and

marine engineering business in the PRC which gives access to main segment markets and

allows the Company to compete with the top players in the market.

Extensive and strong customer resources. The proven track record and extensive

experience have enabled the Company to build a strong reputation in the industry. Through

years of operation, the Company has established stable business relationship with various

leading Chinese state-owned enterprises, public and private companies.

High efficiency and flexibility. Compared with state-owned companies, the Company is

faster in decision making and responses to request and more flexible in way of cooperation

and communication. In addition, with more flexibility in incentive mechanism for our employees

and management team, the Company is able to offer high-quality and customer-oriented

services.

Future development

Key drivers

The development of specialised wharfs. With reference to the functionality, wharfs can

be divided into general wharfs and specialised wharfs. General wharfs refer to wharfs in which

various kinds of cargos containing normal goods can be loaded and unloaded. Specialised

wharfs are typically designed and tailor-made to facilitate the handling of certain kinds of

cargos containing specified goods, such as coals, minerals, oil, liquefied petroleum gas and

natural gas, or for the specified uses, such as fishing wharfs, container wharfs and

car/passenger ferry wharfs. As specialised wharfs are typically constructed by enterprises for

their own specific industrial needs, project owners typically prefer engaging

contractors/subcontractors that have relevant experience in constructing specialised wharfs

and are able to work more effectively and efficiently in terms of timing and costs and to flexibly

adapt to the changes of project schedules and scope of work. According to Frost & Sullivan,

while construction of general wharfs in the PRC is nearly reaching its saturation point after

years of fast development, construction of specialised wharfs is still in the developing stage.

In particular, the government has also set plans to improve port infrastructure and encourage

state-owned and/or private enterprises to construct more specialised wharfs along the coastal

areas, including Jiangsu province, Zhoushan and cities in Guangdong-Hong Kong-Macao Bay

Area, to support the regional sea transportation and economic growth. As such, the demand

for such specialised wharfs is expected to drive the market to grow in the following years.

Land reclamation programme. The PRC has been promoting the land reclamation

programme in nearby sea areas, such as Zhoushan, Hainan and Guangdong-Hong Kong-

Macao Bay Area, which requires a huge amount of dredging engineering. Along with the

progress of land reclamation, the land reclamation programme also directly creates the

demand for port, waterway and marine engineering. Thus the land reclamation programme is

forecasted to stimulate the port, waterway and marine engineering industry.

INDUSTRY OVERVIEW

– 85 –


New energy construction. The PRC is encouraging the development of new energy

installation in order to reduce the carbon emission during the power generation. Development

of new energy in the coastal areas helps alleviate the power shortage in high power load

centres in these areas such as eastern China and southern China. To utilise these new energy

resources, marine engineering is of great importance.

Upgrade and expansion of existing port facilities. Some of the existing port facilities

in the PRC are in need of an upgrade and expansion to meet current requirements for

accommodating larger tonnage liners, intelligent controlling and applying more advanced

equipment. Increasing number of upgrade and expansion projects will drive the port, waterway

and marine engineering market.

Trends

Large-tonnage ports construction. In order to meet the requirement of the larger

container throughput volume in modern marine transportation, the ports are requested to be

able to accommodate increasingly larger tonnage ocean liners. In the PRC, the tonnage of the

ports reached 400,000-ton in 2015. In the future, the construction of large-tonnage ports will

be one of the market trends.

High market concentration. In the port, waterway and marine engineering market in the

PRC, the market concentration rate is high due to the limited number of special grade or

first-grade qualifications and the rigorous restrictions on issuing new qualifications. In

addition, as the previous successful construction experience is very important during the

bidding of major construction projects, the high market concentration rate is forecasted to

remain at a high level.

Specialised wharf construction. Increasing specialised wharf construction projects are

expected to stimulate the growth of the market in the PRC. This segment is expected to

increase its weight in the total market due to high potential demand and saturation of general

wharfs. Accordingly, many market entities are investing more resources on specialised wharf

construction and accumulating knowledge and experience of relevant industries for which the

ports were specially designed.

Development of smart water transport. Smart water transport is an advanced water

transportation system that can improve the efficiency, safety and lower environmental impact

of traditional water transport through the integration of technologies such as remote sensing,

communication network, information controlling. The development of smart water transport

will influence the port, waterway and marine engineering market and require engineering

contractors to integrate the smart hardware in the design and construction of infrastructure.

INDUSTRY OVERVIEW

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THE PORT, WATERWAY AND MARINE ENGINEERING MARKET IN SOUTHEAST ASIA

Overview of port, waterway and marine engineering market in Southeast Asia

The market size of port, waterway and marine engineering market in Southeast Asia

increased from approximately USD7.5 billion in 2012 to approximately USD8.3 billion in 2017,

with an approximately CAGR of 1.9%. The market size declined slightly in 2014 and 2015

mainly affected by currency depreciation in several countries such as Indonesia and Malaysia.

Stimulated by the increasing infrastructure construction in Southeast Asia and China’s Belt

and Road Initiative issued by the PRC, the port, waterway and marine engineering market in

Southeast Asia is expected to grow at a more rapid rate from 2017 to 2022 with a CAGR of

approximately 8.9%, and reach approximately USD12.7 billion in 2022.

The chart below illustrates the historical and projected port, waterway and marine

engineering market in Southeast Asia in terms of revenue from 2012 to 2022:

Market size of port, waterway and marine engineering market

by revenue (Southeast Asia), 2012-2022E

0

2013 2014 2015 2016 2017 2018E 2019E 2020E 2021E

4

2

6

8

10

12

14

USD Billion

CAGR: 1.9%

2012

7.57.9

7.5 7.3 7.68.3

9.09.7

10.6

11.5

2022E

12.7CAGR: 8.9%


Note: Southeast Asia includes Indonesia, Philippine, Thailand, Malaysia, Singapore, Myanmar, Vietnam, Laos,Cambodia, Timor-Leste and Brunei. We currently have presence in Indonesia and Brunei.

INDUSTRY OVERVIEW

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Competitive landscape

The emerging economies of Southeast Asia have a massive need for upgrading domestic

port, waterway and marine engineering infrastructures, and countries like Indonesia, Vietnam

and Brunei Darussalam are becoming more open to foreign investments. The PRC is one of

the biggest foreign investors in Southeast Asia, together with Japan and the US, and

accounted for approximately 14% of the net foreign direct investment inflows into Thailand,

approximately 8% into Vietnam and Indonesia, and approximately 6% into Malaysia in 2016.

Chinese corporations are taking up larger stakes in major infrastructure projects across the

region.

The table below illustrates the ranking of the major Chinese port, waterway and marine

engineering contractors in Southeast Asia in 2017 in term of revenue:

Ranking of the major Chinese port, waterway and

marine engineering contractors

by revenue (Southeast Asia), 2017

Rank Name Revenue

(RMB Million)

1 Company A 5,4782 Our Company 4433 Company B 4184 Company G 3665 Company L 264


Price analysis of raw material

The wholesale price index of materials for port engineering in Indonesia exhibited a trend

of increase from 2012 to 2017 and is expected to increase in the next few years. The

increasing wholesale price index implies the increase of costs for materials of port, waterway

and marine engineering in Indonesia, the most important regional market in Southeast Asia.

Labour cost is another important cost of port, waterway and marine engineering industry.

The nominal wage of workers in construction industry in Indonesia denominated in USD

declined in 2014 and 2015 affected by the depreciation of IDR and started to rebound since

2016.

INDUSTRY OVERVIEW

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Wholesale price index of materials for port engineering, Indonesia, 2012 to 2017

0

2012 2013 2014 2015 2016 2017

20

40

60

80

100

120

140

160

2010 = 100

Wholesale Price Index

109104

119124 125

129

Price of imported raw materials for port infrastructure, Indonesia, 2012 to 2017

0

2012 2013 2014 2015 2016 2017

200

100

500

400

300

600

700

800

900

1,000

1,100

USD/Tonne

Imported Cement

653.4669.5

1,011.8

920.6

814.4

939.9

63.9 68.5 61.5 57.1 44.4 97.8

Imported Steel

Nominal wage of workers in construction industry, Indonesia, 2012 to 2017

0

2012 2013 2014 2015 2016 2017

20

40

60

80

100

120

140

160

180

200

220

240

USD/Month

Nominal Wage of Workers

172178 177

164 169 172

The imported price of cement by Brunei increased from USD91.1 per tonne in 2012 toUSD105.2 per tonne in 2014 and declined later. The imported price of steel in Bruneidecreased in 2014 and fluctuated during 2015 to 2017.

INDUSTRY OVERVIEW

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Price of imported raw materials for port infrastructure, Brunei, 2012 to 2017

0

2012 2013 2014 2015 2016 2017

500

1,000

1,500

USD/Tonne

Imported Cement

1,417.41,452.2

798.2891.0

788.3

91.1 97.6 105.2 87.8 68.2

Imported Steel

909.6

74.4

Source: United Nations, Frost & Sullivan

Key barriers to entry

Experience barrier. Prior experiences are critical to ensure the timely and high-qualitydelivery of the project under the given budget. Therefore, the previous successful experienceis usually of great importance and highly valued during the bidding process. Those newplayers who lack of relevant successful experience will be in a disadvantaged position.

Local regulation barrier. In some Southeast Asia countries, local policies havestipulated the requirements of market entry. For instance, a joint venture has to be establishedwith a local company in order to conduct port, waterway and marine engineering business inIndonesia. The new entrants need to get familiar with regulation requirements to start thebusiness.

Capital barrier. The upfront investment to enter the market is huge due to purchasingand maintenance of construction equipment. For Chinese contractors, extra investment isrequired to participate in the Southeast Asia market such as relocating managers andtechnicians, local office establishing and filling foreign work capital. Newcomers should havesufficient capital support to gain accesses to the market.

Talents barrier. In the Southeast Asian market, the talents are expected to provide notonly professional knowledge, but also deep understanding of the local culture in order tomanage the construction projects smoothly. Therefore, it is challenging for the newcomers tohire or train qualified talents.

Our key advantages over our competitors

Experience advantages. We have successfully expanded into the port, waterway andmarine engineering market in Indonesia and Brunei and secured several large projects inprogress or on hand. The international experience will enable the company to demonstrate itsstrong capability and take an advantageous position in the Southeast Asian market.

INDUSTRY OVERVIEW

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Flexible and efficient construction management. The port, waterway and marine

engineering projects in Southeast Asia require a flexible coordination between the

construction companies and other parties. We are able to coordinate on site in a timely manner

when needed, which streamlines the communication process and offers more efficient and

flexible services to our clients than those of state-owned companies.

Customer advantage. We maintain stable and long-term cooperation relationship with

our customers, which can bring recurring construction contracts and revenue for the company

in the future.

Future development

Key drivers

Increasing international cooperation. The increasing international cooperation in

Southeast Asia, such as establishment of the Association of Southeast Asian Nations

(ASEAN), the Shanghai Cooperation Organization (SCO) and China’s Belt and Road Initiative,

promotes the development of Southeast Asia’s economy. For instance, Southeast Asia holds

a key position under the two “Maritime Silk Roads” covered under China’s Belt and Road

Initiative, of which is designed to promote economic prosperity of relevant countries and

regional economic cooperation, strengthen exchange and mutual learning. At sea, the

initiative focuses on jointly building smooth, secure and efficient transport routes connecting

major sea ports in the region by pushing forward port infrastructure construction, building

smooth land-water transportation channels, and advancing port cooperation. Increasing

international cooperation among countries in the “Maritime Silk Roads” will stimulate sea

commerce as a result. China’s Belt and Road Initiative will accelerate construction of inland

ports in western and central China as well as port infrastructure in cooperative countries along

the “Maritime Silk Roads”. In March 2015, the PRC government officially proposed China’s

Belt and Road Initiative and since its inception, the PRC has signed cooperative agreements

regarding China’s Belt and Road Initiative with more than 100 countries and international

organisations. Promotion of China’s Belt and Road Initiative has been an important aspect of

the 13th Five-year Plan of the PRC during 2016 to 2020. Together with the development of

other international associations which involve Southeast Asia, demand for the port, waterway

and marine engineering market in Southeast Asia will be driven.

Infrastructure upgrade. Existing infrastructure in Southeast Asia fails to support the

development of modern waterway transportation. As new port construction projects have to

pass rigorous procedures of environmental assessment, upgrade or expansion of existing

port, waterway and marine infrastructure is more efficient in meeting stricter transportation

capability requirements. The demand of upgrading existing infrastructure will stimulate market

to grow in Southeast Asia.

INDUSTRY OVERVIEW

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Development of manufacturing industry. Due to lower labour cost and preferable

customs tariff policies in Southeast Asia, more multinational companies are relocating their

manufacturing centre to Southeast Asia to improve their profit margin. The development of

manufacturing industry requires solid support from waterway transportation which is one of the

most economic and convenient way of transportation for large volume of cargos in Southeast

Asia. Thus there is great demand for port, waterway and marine engineering in Southeast Asia

along with the development of manufacturing industry.

INDUSTRY OVERVIEW

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REGULATORY AUTHORITIES

We are regulated by the following main regulatory authorities in the PRC:

• The Ministry of Housing and Urban-rural Development and the constructionadministrative departments of local governments, which shall be responsible forsupervising and regulating the construction industry and regulating activities byentities in the industry by giving guidelines on construction projects in the PRC;

• the Ministry of Transport and the transportation administrative departments of localgovernments, which shall be responsible for supervising and regulating theconstruction projects of ports and roads in the PRC;

• National Development and Reform Commission and its departments at all levels,which shall be responsible for planning, examination and approval of constructionprojects;

• the Ministry of Commerce and its local commerce departments, which shall beresponsible for supervising and regulating international contracts of enterprises inthe construction industry and activities in the PRC by foreign investors;

• the Ministry of Emergency Management and its local departments, which shall beresponsible for supervising and regulating construction work safety in the PRC;

• The Ministry of Ecology and Environment and its local departments, which shall beresponsible for regulating environmental protection for construction projects;

ADMINISTRATION OF QUALIFICATIONS

Qualifications of contracting construction projects

Requirements relating to application for qualification and scope of contracting byenterprises in the construction industry have been made in the Construction Law of the PRC(《中華人民共和國建築法》) (promulgated on 1 November 1997, effective on 1 March 1998 andamended on 1 July 2011), Provisions on the Administration of Qualifications of Enterprises inConstruction Industry (《建築業企業資質管理規定》) (promulgated on 31 January 2015,effective on 1 March 2015 and amended on 13 September 2016), Construction CompanyQualification Criteria (《建築業企業資質標準》)(promulgated on 6 November 2014 andeffective on 1 January 2015), the Standards for Special-grade Qualification of GeneralContracting Enterprises for Construction (《施工總承包企業特級資質標準》) (promulgated andeffective on 13 March 2007), the Premium Class Standards, the Implementing Measures ofPremium Class Qualification Standards for General Construction Contractors 《施工總承包企業特級資質標準實施辦法》(promulgated and effective on 30 November 2010), the Opinions onthe. Implementation of the Provisions on the Administration and standard of Qualifications ofEnterprises in Construction Industry (《建築業企業資質管理規定和資質標準實施意見》)(promulgated on 31 January 2015, effective on 1 March 2015 and amended on 9 November2015) and other regulations.

REGULATORY OVERVIEW

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An enterprise in construction industry may only contract for those construction work thatfall within the relevant class applied for in accordance with these laws and regulations. Thequalifications of enterprises in construction industry fall into three categories, namely, maincontractors that are qualified in undertaking the whole of a construction project, professionalservices contractors that are qualified in undertaking a specialised contract and labourservices subcontractors that are qualified in undertaking a labour service by subcontract. Thequalifications of main contractors are classified into the following categories: Special Grade,Grade I, Grade II and Grade III. Qualifications of professional services contractors areclassified into the following categories: Grade I, Grade II and Grade III.

An enterprise holding the qualification of main contractor can perform all works that itcontracted for by itself with its qualification, or subcontract non-core construction work orlabour services to qualified professional services contractors or qualified labour servicessubcontractors.

A qualified professional service contractor may enter into a contract to provideprofessional services subcontracted out by a main contractor under relevant provisions but isprohibited to subcontract these professional contracts.

Specific requirements in relation to standards for these categories and grades have beenmade in the Construction Company Qualification Criteria, while the standards for SpecialGrade has been made separately in the Standards for Special-grade Qualification of GeneralContracting Enterprises for Construction. Grades and qualifications for ports and waterwaysprojects are classified into different categories by standards for assessment based on assetsof the enterprise, key staff, previous performance and technologies. As for Special/Grade Ienterprises, they have to meet more stringent standards as compared to enterprises with othergrades. For example, to be a main contractor with Grade One qualification for the company’sports and waterways construction projects, the company shall have net assets of overRMB100 million. The net assets shall be over RMB40 million and over RMB8 million,respectively, for enterprises applying for Grade II and Grade III qualification, respectively.

According to Construction Company Qualification Criteria, different enterprises shallenter into different scopes of contracts for construction work in accordance with theirrespective qualifications. For example, main contractors with Grade One qualification in portsand waterways construction can contract for the overall works for ports and waterwaysconstructions, including pier, seawall, revetment, cofferdam, land yard, road and structures onland, silo, dock, berth, slipway, ship lock, shiplift, underwater foundation, sand filing, offshorelighthouse, bolina, trestle, man-made island and platform, offshore wind turbine, coastal andoffshore works, installation of E&M services for loading equipment at ports, installation of E&Mservices for building equipment used in navigation, waterway remediation and channelisationprojects, dredging and reclamation, underwater excavation and cleaning and underwater rockblasting and cleaning, while enterprises with Grade 2 and Grade 3 qualifications cannotcontract some of these works.

The Certificates of Qualifications of Construction Enterprises shall be valid for 5 years.Enterprise should apply for renewing the certificates of qualifications 3 months before itsexpiration with the same authority that issued the qualifications.

REGULATORY OVERVIEW

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TENDER AND BIDDING

According to the Tendering and Bidding Law of the PRC (《中華人民共和國招標投標法》)

(promulgated on 30 August 1999, effective on 1 January 2000 and amended on 27 December

2017), Bidding shall be carried out for the following construction projects, including the survey,

design, construction, supervision of the project, and the procurement of the important

equipment, materials relevant to the construction of the project: (i) projects such as large-scale

infrastructure facilities and public utilities involving the social and public interests and public

safety in the PRC; (ii) projects invested wholly or partly by state-owned funds or funded

through State financing; and (iii) projects financed with funds from an international

organisation or loans or aiding funds from foreign governments.

Under the provisions of the Construction Law of the PRC, the tendering and bidding

activities for contracting of construction projects shall follow the principle of openness, justice

and equal competition, and contractors should be selected based on their merits.

Relevant requirements and procedures in relation to tender and bidding have been

stipulated in The Implementation Regulations for Tendering and Bidding Law of the People’s

Republic of China (《中華人民共和國招標投標法實施條例》) (promulgated on 20 December

2011 and effective on 1 February 2012, amended on 1 March 2017 for the first time and

amended on 19 March 2018 for the second time), the Tendering and Bidding Methods on

Project Construction (《工程建設項目施工招標投標辦法》) (promulgated on 8 March 2003,

effective on 1 May 2003 and amended on 11 March 2013) and Administrative Measures for

Bidding on Water Transport Construction Projects (《水運工程建設項目招標投標管理辦法》)

(promulgated on 20 December 2012 and effective on 1 February 2013) and other relevant legal

documents. The bid evaluation commission shall be organised and established by the bid

inviters for bid evaluation. The bid evaluation commission shall be composed of the

representatives of the bidding agencies and the experts in technology, economy, etc. The

number of the members shall be 5 or the odd numbers more than 5, among which the experts

in technology, economy, etc shall not be less than two thirds of the total number of the

members. The expert members of bid evaluation commission shall be determined by random

selection from the expert rolls provided by the relevant departments of the people’s

governments at the provincial level or above, or from the expert lists in the expert databases

of bidding agencies established by the State Council. For example, for water transportation

engineering projects under supervision and administration by the Ministry of Transport, the

expert members of bid evaluation shall be determined by random selection from the experts

rolls provided by the expert databases of the water transportation support system of the

Ministry of Transport and the expert members of bid evaluation for other water transportation

engineering projects shall be determined by random selection from the expert rolls provided by

the expert databases established by transportation authorities at provincial level or other

expert databases established in accordance with the laws.

REGULATORY OVERVIEW

– 95 –


WORK SAFETY IN CONSTRUCTION

According to the Work Safety Law of People Republic of China (《中華人民共和國安全生產法》) (effective on 1 November 2002, amended for the first time on 27 August 2009 and forthe second time on 31 August 2014), a production entity must meet the state’s legal standardor industrial standard on work safety and provide work conditions set out in relevant laws,administrative rules and State or industry standards. An entity that cannot provide requiredwork safety conditions may not engage in production activities. The designers and the designfirms for the safety facilities of a construction project are liable for their designs.

According to the Administrative Regulation on the Work Safety of Construction Project(《建設工程安全生產管理條例》) (promulgated on 24 November 2003 and effective on 1February 2004), project owners shall not make to the entities engaged in surveying, design,engineering and supervision of such projects any request that does not meet the requirementsunder laws and regulations relating to work safety and the relevant compulsory standards.Project owners shall not shorten the contracted time of delivery. The chief person-in-charge ofthe construction entities is responsible for the overall work safety of the entities concerned. Ina general contracting construction project, the main contractor is liable for the overall worksafety on the construction site. The main contractor and the subcontractors bear joint liabilityfor the work safety of the subcontracted projects. The project owner shall establish a worksafety department and allocate full-time safety management personnel.

Specific requirements in relation to the issuance and administration of production safetylicences to construction enterprises have been made in the Regulations on Production SafetyPermit (《安全生產許可證條例》) (promulgated and effective on 13 January, 2004, latestamended on 29 July 2014 for the second time), Administrative Provisions on the Work SafetyLicence of Construction Enterprises (《建築施工企業安全生產許可證管理規定》) (promulgatedand effective on 5 July 2004 and amended on 22 January 2015), the Opinions of AdministrativeProvisions on the Work Safety Licence of Construction Enterprises (《建築施工企業安全生產許可證管理規定實施意見》) (promulgated and effective on 27 August, 2004). The PRCgovernment implements a work safety permit system for construction enterprises.Construction enterprises shall make application to building authorities at provincial level orabove for work safety permits before entering into construction work. No constructionenterprise may engage in construction work without a work safety permit.

The work safety permit shall be valid for 3 years. Enterprise should apply for renewing thework safety permit 3 months before its expiration with the same authority that issued thepermit.

According to the Safety Administration Regulation on Above-water and Under-waterConstruction Works and Navigation (《中華人民共和國水上水下活動通航安全管理規定》)(promulgated on 27 January 2011, effective on 1 March 2011 and amended on 2 September2016), an entity engaged in above-water or under-water construction work, the project owneror the main contractor that contracts for the overall works for the project must apply to the localmaritime affairs authorities and file relevant documents, and may not commence suchabove-water or under-water construction work until it has obtained the permit for above-wateror under-water construction work of the PRC from the maritime affairs authorities.

REGULATORY OVERVIEW

– 96 –


QUALITY CONTROL

According to Regulation on the Quality Management of Construction Projects (《建設工程質量管理條例》) (promulgated and effective on 30 January 2000 and amended on 7 October

2017), the construction project owners, survey entities, design entities, construction entities

and construction project supervision entities shall be responsible for the quality of construction

projects in accordance with the laws. Those engaging activities of construction projects shall

strictly comply with the fundamental construction procedures and shall stick to the principles

of surveying first, then designing and then constructing. In a general contracting construction

project, the main contractor is liable for quality of the overall work. If the main contractor

contracts out the construction project to another entity in accordance with the law, the

subcontracting entity shall, under the contractual stipulations, be responsible for the quality of

the project subcontracted by it to the main contractor. The main contractor and the

subcontracting entity shall be jointly and severally responsible for the quality of the aforesaid

project. A system of quality repair guarantee shall be adopted for construction projects. If any

quality problem occurs, which falls within the scope of repair guarantee and within the period

of repair guarantee, the construction entity shall perform the obligation of repair guarantee and

shall be liable for compensating the losses.

The PRC government adopts a system of supervision and regulation of the quality of

construction projects. The construction administrative department of the State Council shall

supervise and regulate the quality of construction projects in China in a centralised manner.

The relevant departments of railways, communications and water resources of the State

Council shall, under their respective functions, be responsible for supervising and regulating

the quality of the relevant special construction projects in China.

EXAMINATION ON CONSTRUCTION WORK

According to the Administrative Provisions on the Construction of Port Projects (《港口工程建設管理規定》) (promulgated on 15 January 2018 and effective on 1 March 2018), a wharf

construction project shall have completion-based check and acceptance in time according to

the relevant laws and regulations, it may not be put into official use until being checked as

qualified. A national key water transport construction project shall be applied to the provincial

transport department for completion-based check and acceptance by the project entity. Other

government-invested wharf construction projects shall be applied to the port administrative

departments where the ports are located for completion check and acceptance, and the wharf

construction projects invested by enterprises shall subject to completion check and

acceptance by the project entities.

Pursuant to the Rules of As-built Inspection of Housing, Building and Municipal

Infrastructure Projects (《房屋建築和市政基礎設施工程竣工驗收規定》) (promulgated and

effective on 2 December 2013), the construction entities shall made applications to the

building authorities after the completion of the construction work for the final inspection and

acceptance. The construction project owners shall organise an inspection team comprising

survey, design, construction and supervision units to conduct final inspection and acceptance.

REGULATORY OVERVIEW

– 97 –


According to the Administrative Measures for the Filing of As-built Inspection of Housing,Building and Municipal Infrastructure Projects (《房屋建築和市政基礎設施工程竣工驗收備案管理辦法》) (promulgated and effective on 4 April 2000 and amended on 19 October 2009), Aconstruction entity shall, in accordance with the measures, go through the filing formalitieswith the construction administrative department of the people’s government at or above thecounty level at the place where the project is located within 15 days as at the date on which theas-built inspection of the project is passed.

CONTRACTING OF FOREIGN PROJECTS

According to the Administrative Regulations on Contracting Foreign Projects (對外承包工程管理條例) (promulgated on 21 July 2008, effective on 1 September 2008 and amended on 1March 2017), the commerce department of the State Council shall be responsible forsupervising and regulating contracting of foreign projects held nationwide and the provincialcommerce departments shall take charge of the supervision and administration of contractingof foreign projects held in their administrative regions. The relevant departments of the StateCouncil shall under their respective functions be responsible for regulating matters relating tocontracting of foreign projects. The construction department of the State Council shallorganise and arrange construction enterprises to participate in contracting foreign projects.

A foreign project contractor shall have a specific safety management institution andworkers to protect the personal safety and property safety of the persons assigned abroad,and work out a plan for protecting the personal safety and property safety of the personsassigned abroad in light of the specific situations of the project contracted by it, and put thefunds needed in position. A foreign project contractor shall deposit reserve funds inaccordance with the requirements of the competent commerce authorities and the financialdepartment of the State Council.

ENVIRONMENTAL PROTECTION

According to the Environmental Protection Law of the People’s Republic of China (《中華人民共和國環境保護法》) (promulgated and effective on 26 December 1989 with lastamendment made on 24 April 2014 and effective on 1 January 2015), the competentdepartment of environmental protection administration under the State Council shall establishthe national standards for the discharge of pollutants. The people’s governments of provinces,autonomous regions and municipalities directly under the Central Government may developmore stringent standards for the discharge of pollutants with regard to items already specifiedin the national standards. The PRC government implements the pollutants discharge licencingsystem in accordance with the laws. Enterprises, institutions and other producers andoperators that implement the pollution discharge licence management shall dischargepollutants according to the requirements of the pollution discharge licence; those fail to obtainthe pollution discharge licence shall not discharge pollutants.

According to the Marine Environmental Protection Law of the People’s Republic of China(《中華人民共和國海洋環境保護法》) (promulgated on 23 August 1982, effective on 1 March1983 and lastly amended on 4 November 2017), without approval of the State oceanic

REGULATORY OVERVIEW

– 98 –


administrative department, no unit may dump any wastes into the sea areas under the

jurisdiction of the People’s Republic of China. Any unit that needs to dump wastes in the sea

must submit a written application to the State oceanic administrative department, and may

dump its wastes only after the State oceanic administrative department has examined and

approved the application and a permit is granted.

Specific requirements in relation to prevention and control of waste water, exhaust gas

and solid wastes have been made in the Water Pollution Prevention and Control Law of the

People’s Republic of China (《中華人民共和國水污染防治法》) (promulgated on 11 May 1984,

effective on 1 November 1984 and amended for the second time on 27 June 2017), the

Environmental Pollution Prevention and Control Law of Solid Wastes of the People’s Republic

of China (《中華人民共和國固體廢物污染環境防治法》) (promulgated on 30 October 1995,

effective on 1 April 1996 and lastly amended on 7 November 2016), the Prevention and Control

of Atmospheric Pollution Law of the People’s Republic of China (《中華人民共和國大氣污染防治法》) (promulgated on 5 September 1987, effective on 1 June 1988 and lastly amended on

29 August 2015).

LABOUR WORK AND PERSONNEL

The Labour Law of the People’s Republic of China (《中華人民共和國勞動法》)

(promulgated on 5 July 1994, effective on 1 January 1995 and amended on 27 August 2009)

regulates the issues relating to promotion of employment, employment contracts, working

hours and rest days and holidays, wages, occupational safety and health, special labour

protection for female worker and juvenile workers, training of vocational skills, social

insurance and welfare and settlement of labour disputes.

According to the Labour Contract Law of the People’s Republic of China (《中華人民共和國勞動合同法》) (promulgated on 29 June 2007, effective on 1 January 2008 and amended on

28 December 2012) and the Regulation on the Implementation of the Employment Contract

Law of the People’s Republic of China (《中華人民共和國勞動合同法實施條例》) (promulgated

and effective on 18 September 2008), an employer’s employment relationship with an

employee is established on the date it starts employing the employee and a written

employment contract shall be concluded. These laws and regulations govern the

establishment, performance, amendment, termination and ending of employment contracts

and safeguard the rights and interests of the employees.

According to the Interim Provisions on Labour Dispatch (《勞動派遣暫行規定》)

(promulgated on 24 January 2014 and effective on 1 March 2014), employers may employ

dispatched workers in temporary, auxiliary or substitutable positions only. An employer shall

strictly control the number of dispatched workers employed which shall not exceed 10% of the

total number of its workers.

According to the Social Insurance Law of the People’s Republic of China (《中華人民共和國社會保險法》) (promulgated on 28 October 2010 and effective on 1 July 2011), the Interim

Regulation on the Collection and Payment of Social Insurance Premiums (《社會保險費徵繳暫

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行條例》) (promulgated and effective on 22 January 1999), the Provisional Measures onInsurance for Maternity of Employees (《企業職工生育保險試行辦法》) (promulgated on 14December 1994 and effective on 1 January 1995), the Regulation on Work-Related InjuryInsurance (《工傷保險條例》) (promulgated on 27 April 2003, effective on 1 January 2004 andamended on 20 December 2010), the Regulations on Unemployment Insurance (《失業保險條例》) (promulgated and effective on 22 January 1999), the Regulation on the Administration ofHousing Accumulation Funds (《住房公積金管理條例》) (promulgated and effective on 3 April1999 and amended on 24 March 2002), employers in the People’s Republic of China shouldmake contributions to social insurance funds, including the basic pension insurance fund,basic medical insurance fund, occupational injury insurance fund, unemployment insurancefund and maternity insurance fund, and housing provident fund for their employees.

In addition, according to the Administrative Regulations on the Work Safety ofConstruction Projects (《建設工程安全生產管理條例》), promulgated on 24 November 2003and effective on 1 February 2004, a construction entity must purchase accidental injuryinsurance for the workers engaged in dangerous works on the construction site for injuriessuffered in work-related accidents, and the insurance premium will be paid by the constructionentity. In the case of a construction work covered by a main contract, the insurance premiumwill be paid by the main contractor. The period covered by the insurance policies shouldcommence on the starting date of the construction project and terminate on the date of theacceptance and inspection upon the completion of the project.

According to the Notice of the Ministry of Labour on the Implementation of the LabourContract System (《勞動部關於實行勞動合同制度若干問題的通知》) (promulgated and effectiveon 31 October 1996), if retirees who have enjoyed pension benefits are rehired, the employershould conclude written agreements with them. Such agreements should specify the scope ofthe job, compensation, medical care, benefits and other rights and obligations during the termof employment.

FOREIGN INVESTMENT

The establishment and operation of corporates in the PRC are governed by the CompanyLaw of the People’s Republic of China (《中華人民共和國公司法》) (promulgated on 29December 1993, effective on 1 July 1994 and lastly amended on 28 December 2013). Therequirements contained in the Company Law of the People’s Republic of China in relation toestablishment, organisation, activities and dissolution of corporates shall also apply toforeign-invested limited liability companies and companies limited by shares, unless otherwiseprovided in laws on foreign investment in which case such provisions shall apply.

Requirements for establishment procedures, approval and filing procedures, registeredcapital and organisation of wholly foreign-owned enterprise have been made in the Law of thePeople’s Republic of China on Wholly Foreign-Owned Enterprises in China (《中華人民共和國外資企業法》) (promulgated and effective on 12 April 1986 and amended for the second timeon 3 September 2016), Detailed Rules For the Implementation of the Law of the People’sRepublic of China on Wholly Foreign-Owned Enterprises in China (《中華人民共和國外資企業法實施細則》) (promulgated and effective on 12 December 1990 and amended for the secondtime on 19 February 2014).

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According to the Interim Measures for the Recordation Administration of the Formation

and Modification of Foreign-Funded Enterprises (《外商投資企業設立及變更備案管理暫行辦法》) (promulgated and effective on 8 October 2016, and amended on 29 June 2018), for

establishment or changes of the wholly foreign owned enterprises which do not involve the

state regulated special access management measures, filing shall be made through the

integrated foreign investment management information system.

The Catalogue of Industries for Guiding Foreign Investment (《外商投資產業指導目錄》)

(promulgated on 28 June 1995, lastly amended on 28 June 2017 and effective on 28 July 2017)

classifies industries for foreign investment into three categories, namely, the encouraged

category, the restricted category and the prohibited category. Foreign investment in the

prohibited category is not allowed and requirements on foreign equity ratio are provided for

projects in restricted category.

FOREIGN EXCHANGE ADMINISTRATION

According to the Regulation of the People’s Republic of China on Foreign Exchange

Administration (《中華人民共和國外匯管理條例》) (promulgated on 29 January 1996, effective

on 1 April 1996 and lastly amended on 5 August 2008), it is prohibited to circulate foreign

currencies in the People’s Republic of China or use foreign currencies for pricing or account

settlement, unless otherwise stipulated by the PRC government. The foreign exchange

income and expenditure under the current items are not subject to approval when it shall be

made on the basis of authenticity and lawfulness. Domestic institutions and individuals which

have direct investments or are involved in the issue or transactions of priced securities or

derivatives outside the PRC shall complete the registration as required by the foreign

exchange administrative department of the State Council. Transactions that require approval

or acknowledgment in advance by the competent authority of the State must complete the

necessary approval or acknowledgment procedures before registration of foreign exchange.

The foreign exchange expenditure under the capital items shall be paid, in accordance with

administrative provisions issued by the State Council of foreign exchange payment and foreign

exchange purchase, with valid documents in their own foreign exchange or through

purchasing foreign exchange from the institutions operating exchange settlement and sale

business. If the relevant state provisions require it shall be subject to approval of the foreign

exchange administrative department, it should do so before exchange payment.

According to the Notice of the State Administration of Foreign Exchange on Relevant

Issues concerning Foreign Exchange Administration for Domestic Residents to Engage in

Financing and in Return Investment via Overseas Special Purpose Companies (《國家外匯管理局關於境內居民通過特殊目的公司境外投融資及返程投資外匯管理有關問題的通知》) (promulgated

on 4 July 2014), offshore enterprise directly established or indirectly controlled by the domestic

residents (including domestic legal persons and natural persons) with their legally owned assets

and equity of the domestic enterprise or legally owned offshore assets or equity, for the purposes

of investment and financing shall be subject to foreign exchange registration for offshore

investment with SAFE. In the event of any change of basic information of the registered overseas

special purpose companies such as the individual shareholder, name, operation term, or if there is

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a capital increase/decrease, equity transfer or swap, merge, spin-off or other amendment of the

material items, the domestic resident shall complete foreign exchange alteration of the registration

formality for offshore investment with SAFE in a timely manner. Foreign-invested enterprises

established in return investments shall be subject to completion of relevant foreign exchange

registration formality in accordance with the effective provisions on the foreign exchange

administration of direct investment of foreign investors, and shall disclose the de facto controller

and other relevant information of the shareholders. After a special purpose company has

completed overseas financing, if the funds raised are repatriated to the Mainland for use, relevant

Chinese provisions on foreign investment and external debt management shall be complied with.

According to the Notice of the State Administration of Foreign Exchange on Further

Simplifying and Improving Policies for the Foreign Exchange Administration of Direct Investment

(《國家外匯管理局關於進一步簡化和改進直接投資外匯管理政策的通知》) (promulgated on 13

February 2015 and effective on 1 June 2015), the SAFE decided to further simplify and improve

policies for the foreign exchange administration of direct investment around the entire nation, by

cancelling two administrative approval items: confirmation of foreign exchange registration under

domestic direct investment and confirmation of foreign exchange registration under overseas

direct investment and, instead, banks shall directly examine and handle foreign exchange

registration under domestic direct investment and foreign exchange registration under overseas

direct investment, and the SAFE and its branch offices shall indirectly regulate the foreign

exchange registration of direct investment through banks and simplifying the procedures for some

foreign exchange transactions under direct investment.

PROVISIONS ON M&A

On 8 August 2006, six PRC regulatory agencies, including the CSRC, promulgated the

Provisions on M&A of a Domestic Enterprise by Foreign Investors (《關於外國投資者併購境內企業的規定》). The Provisions became effective on 8 September 2006 and was amended on

22 June 2009. According to the Provisions on M&A, a foreign investor shall, when merging a

domestic enterprise to establish a foreign-funded enterprise, be subject to the approval of the

Ministry of Commerce or its commerce departments at provincial level and make registration

of modification or establishment with the commerce authorities. All parties involved in the

merger of domestic enterprises by foreign investors shall comply with China’s relevant laws

and regulations on foreign exchange control, and shall promptly go through all procedures on

approval, registration, putting on records and alteration regarding foreign exchange with the

competent foreign exchange administrative authorities. According to the Interim Measures for

the Recordation Administration of the Formation and Modification of Foreign-Funded

Enterprises (《外商投資企業設立及變更備案管理暫行辦法》) (promulgated and effective on 8

October 2016 and amended on 30 July 2017), for the formation of foreign-funded enterprises

that do not involve the implementation of special administrative measures for access as

prescribed by the state, shall subject only to recordation through the integrated foreign

investment management information system and is not subject to approval by commerce

departments.

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In addition, the M&A Rules require offshore special purpose companies controlleddirectly or indirectly by PRC companies or natural persons with a view to listing on an overseasstock exchange with their interests in these companies in China and merge and acquiredomestic companies through equity-settled payment transactions to obtain the approval of thesecurities regulatory agency of the State Council prior to the listing and trading of theirsecurities on any overseas stock exchange.

TAXATION

Income tax

According to the Enterprise Income Tax Law of the People’s Republic of China (《中華人民共和國企業所得稅法》) (promulgated on 16 March 2007, effective on 1 January 2008 andamended on 24 February 2017) and the Regulation on the Implementation of the EnterpriseIncome Tax Law of the People’s Republic of China (《中華人民共和國企業所得稅法實施條例》)(promulgated on 6 December 2007 and effective on 1 January 2008), both PRC domesticcompanies and foreign-invested enterprises are subject to an enterprise income tax at theunified rate of 25%. The enterprise income tax rate applied to enterprises, which have no officeor establishment inside China or have no actual connection to their institutions orestablishments inside China, shall be 20%. An enterprise that is established in accordancewith PRC laws or established under the laws of foreign jurisdictions but whose de factomanagement body is located in China is treated as “resident enterprise”. Resident enterprisesare subject to enterprise income tax on their income sourced from and outside China.Non-resident enterprises which have establishments or premises of business in China aresubject to enterprise income tax on their income sourced from China by such establishmentsor premises of business in China and on their income sourced from outside China which iseffectively connected with such establishments or premises of business.

The PRC-Hong Kong Tax Treaty

According to the Arrangement between Mainland China and Hong Kong SAR concerningAvoiding Double Taxation and Preventing Tax Evasion on Income (《內地和香港特別行政區關於對所得避免雙重徵稅和防止偷漏稅的安排》), a PRC resident enterprise that distributesdividend to its Hong Kong shareholders can be subject to enterprise income tax according tothe PRC laws. However, if the beneficiary of the dividend is a Hong Kong tax resident thatdirectly holds no less than 25% equity of the PRC dividend distributor, the tax levied shall notbe more than 5% of the distributed dividend. If the beneficiary of the dividend is a Hong Kongtax resident that directly holds less than 25% equity of the aforesaid enterprise, the tax leviedshall not be more than 10% of the distributed dividend.

Value-added tax (VAT)

According to the Provisional Regulations of the People’s Republic of China on Value-added Tax (《中華人民共和國增值稅暫行條例》) (promulgated on 13 December 1993, effectiveon 1 January 1994 and amended on 19 November 2017), entities and individuals that sellgoods or labour services of processing, repair or replacement, sell services, intangible assetsor immovables, or import goods within the territory of the People’s Republic of China shall payVAT.

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According to the Notice of the Ministry of Finance and the State Administration ofTaxation on Implementing the Pilot Programme of Replacing Business Tax with Value-AddedTax in an All-round Manner (《財政部、國家稅務總局關於全面推開營業稅改增值稅試點的通知》) (promulgated on 23 March 2016 and effective on 1 May 2016), the Notice of the Ministryof Finance and the State Administration of Taxation on the Policies on Construction Servicesand Other Items during the Period of the Pilot Programme of Replacing Business Tax withValue-Added Tax (《財政部、國家稅務總局關於建築服務等營改增試點政策的通知》)(promulgated and effective on 1 July 2017), for the provision of construction services of oldconstruction projects (refers to construction projects launched time before 30 April 2016stating on the construction work commencement permit or those launched time before 30 April2016 stating on the contract for construction work) by general taxpayers, the simple taxcomputation method shall apply. The rate of VAT shall be 3%.

According to these provisions and the Notice of the Ministry of Finance and the StateAdministration of Taxation on Adjusting Value-added Tax Rates (《財政部、稅務總局關於調整增值稅稅率的通知》) (promulgated on 4 April 2018 and effective on 1 May 2018), the applicableVAT rate for general taxpayers who provide construction services (excluding channel dredgingservices) shall be 10% and the applicable VAT rate for general taxpayers who provide channeldredging services shall be 6%.

City maintenance and construction tax

According to Provisional Regulations of the People’s Republic of China on CityMaintenance and Construction Tax (《中華人民共和國城市維護建設稅暫行條例》)(promulgated and effective on 8 February 1985 and amended on 8 January 2011), all units andindividuals who are taxpayers of Consumption Tax, Value Added Tax and Business Tax shallpay City Maintenance and Construction Tax. The tax rate shall be 7% for a taxpayer whosedomicile is in an urban area, 5% for a taxpayer whose domicile is in a county or a town and 1%for a taxpayer whose domicile is not in any urban area, county or town.

Education surcharges

According to Interim Provisions on the Collection of Educational Surcharges (《徵收教育費附加的暫行規定》) (promulgated and effective on 1 July 1986 and amended on 8 January2011), entities and individuals obliged to pay consumption tax, value-added tax and businesstax shall pay educational surcharges under these Provisions, except for entities payingadditional charges for rural education. The rate for education surcharges shall be 3%.

LAWS AND REGULATIONS IN BRUNEI DARUSSALAM

In Brunei Darussalam, all businesses must be registered either under as a business nameor an incorporated entity under the Companies Act (Cap.39) Laws of Brunei. Incorporationinvolves the submission of Memorandum and Articles of Association of a proposed companyto the Registrar of Companies, together with incorporation documents in the prescribed forms.The incorporation process takes about two working days before a certificate of incorporationis issued at which time the company may start to operate.

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A private company designated with “Sendirian Berhad”, Sdn Bhd, must by its constitution(Articles of Association) restrict the right of its members to transfer shares, limit itsmembership to fifty and prohibit any invitation to the public to subscribe for shares anddebentures. A private company limited by shares is required to comply with inter alia thefollowing requirements:

(i) One of the two directors or, where there are more than two directors, at least two ofthem shall be ordinarily resident in Brunei Darussalam.

(ii) The company must have at least two shareholders.

(iii) The company must appoint auditors to audit their accounts and reports to theshareholders if its turnover is above BND1 million.

(iv) The company must also file annual returns with the Registrar of Companies andsubmit annual tax returns to the Collector of Income Tax (CIT) at the Ministry ofFinance.

(v) The company shall keep proper books of account.

(vi) The company should keep minutes of the general meetings of shareholders anddirectors.

(vii) Keeping of a register of shareholders and directors.

Failure to take reasonable steps to comply with the requirements would constitute anoffence under the Companies Act. Benteng Brunei is a private limited company and hascomplied with the laws.

Law and regulations in relation to the business of Benteng Brunei

Construction services

Benteng Brunei was incorporated on the 19th January 2016 under the Companies Act(Cap 39). Benteng Brunei’s main objectives are predominantly construction related as evidentfrom the following paragraphs of its memorandum of association:

(i) To enter into contracts for the purposes of the company to erect, construct, maintain,alter, repair, pull down and restore either alone or jointly with any other company orpersons, works of all descriptions including in particular wharves, docks, piers,railways, tramways, waterways, roads, bridges, warehouses, storage tanks, oilrefineries, factories, mills, engines, plants and wagons and buildings of everydescription;

(ii) To build and construct, fit and repair, recondition, maintain for the use of thecompany or for letting out on hire graving and other docks and other installations for

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building, repairing or docking ships and other vessels, and to aid in or contribute tothe construction of any such works on ships, boats, drilling rigs and floating andsubmersible vessels and ancillary equipment of every description and reconditionengines, boilers, marine and river equipment and machinery;

(iii) To carry on all or any of the business of developers, buildings contractors,subcontractors and engineering contractors (whether civil, mechanical, electrical,structural, chemical, oil and gas, aeronautical, marine or otherwise) for constructionand demolition work of any kinds of buildings, skyscrapers, industrial installations,power production plants, offshore platforms, transport and sporting infrastructure forpublic and private industries, civil and marine industries, oil and gas industry andworks of any kinds; and

(iv) To construct, build, charter, purchase or otherwise acquire bunkers, work ships andvessels of any type or class, submarines, amphibian crafts, hulls, helicopters,locomotives and to establish and maintain lines or regular services of ships or othervessels, and generally to carry on the business of ship-owners and to enter intocontracts for the carriage of oil and gas, mails, passengers, goods and animals byany means, and either by its own vessels and other forms of transportation, or by orby use of the vessels and facilities of others.

Companies usually opt for a class or category of contractor in which they would want tobe registered, after having considered the range of their contract values as well as the typesof contracts which they possess the capabilities to execute. Typically, contractors falling underhigher classes/categories will engage in contracts with higher values which require moreadvanced knowledge and technology.

There are no regulatory restrictions under the laws of Brunei on the ownership ofcompanies involved in the construction industry during the process of incorporation, althoughcompanies which would like to undertake government contracts directly with the governmentwill have to be registered with the Ministry of Development of Brunei. Nevertheless, it is theregistration requirements of the Ministry of Development of Brunei that these companies haveto be partially or substantially owned by Bruneian Malay nationals depending on the value ofthe government contracts.

Further, there are also no restrictions or prohibitions under the laws of Brunei on thesubcontracting of government construction work by main contractors which have beenregistered with the Ministry of Development of Brunei to subcontractors which have not beenregistered with the Ministry of Development of Brunei. The main contractors shall remain liableto the Ministry of Development of Brunei under the main government contracts. Given thatsubcontractors which have not been registered with the Ministry of Development of Brunei arenot bound by any ownership requirements, subcontractors can be foreign-owned companiesas in the case of Benteng Brunei. Foreign-owned companies that do not wish to dilute theirownership but of which have the requisite expertise to undertake government work cantypically enter into subcontracting arrangements with main contractors which have beenregistered with the Ministry of Development of Brunei when undertaking government work.

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As such, although Benteng Brunei is not registered with the Ministry of Development ofBrunei, PSB is a construction company which is certified and accredited by the Ministry ofDevelopment of Brunei as a Class VI Contractor. As confirmed by our Brunei Legal Advisers,according to section 42(2)(a) of Building Control Order 2014 under Brunei law, BentengBrunei, as a subcontractor, may accept port construction work awarded by the governmentfrom PSB. For more details of the background of PSB and it ultimate beneficial owner, pleaserefer to the section headed “Trust and Contractual Arrangements – Our trust arrangement forBenteng Brunei” in this document.

Labour health and safety

Other legislation that a construction company needs to comply with is the EmploymentOrder 2009, Labour (Immigrant Workers’ Employment Licences) Rules and the Workplace,Safety and Health (Construction) Regulations 2014.

Employment Order 2009 regulates the employment of staff in the country. In essence, allcontracts of employment have to comply with the minimum conditions of employment stated inthe Employment Order. Any employer who failed to comply with the Employment Order orenters into a contract of service contrary to any provisions of the Employment Order is guiltyof an offence and liable on conviction to a fine not exceeding $3,000, imprisonment for a termnot exceeding one year or both.

Besides that, all foreign workers working in the country will need to have an employmentpass; and their employers will need to have a licence to employ foreign workers as stated in theLabour (Immigrant Workers’ Employment Licences) Rules.

The Workplace, Safety and Health (Construction) Regulations 2014 regulate for thesafety and health protection of workers in an industrial undertaking. It is the duty of theoccupier of a worksite to implement and maintain at all times a safety and health managementsystem for the purpose of ensuring the safety and protecting the health of every person withinthe worksite, whether or not the person is at work or is an employee of the occupier.

Where the contract value of the construction work to be carried out in a worksite is $30million or more, it shall be the duty of the occupier of the worksite to appoint a workplace safetyand health auditor to audit the safety and health management system of the worksite at leastonce every 6 months. Where the contract value is less than $30 million, it shall be the duty ofthe occupier of the worksite to conduct a review of the safety and health management systemof the worksite at least once every 6 months and if directed by the Commissioner, appoint aworkplace safety and health auditor to audit the safety and health management system of theworksite.

A workplace safety and health coordinator shall be appointed to assist and makerecommendation to the occupier of the worksite in respect of every worksite where the contractvalue is less than $10 million.

Any person who contravenes with the Workplace, Safety and Health Regulations thatimposes a duty on him is guilty of an offence and liable on conviction to a fine not exceeding$20,000, imprisonment for a term not exceeding two years or both.

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Environmental protection

The Environmental Protection and Management Order 2016 is the principal legislation inBrunei Darussalam that regulates emission of air pollutants and noxious odour fromconstruction, industrial and commercial activities and other polluting sources. The PollutionControl Guidelines for Industrial Development serve as a quick reference on pollution controlrequirements of the Department of Environment, Parks and Recreation for industrialdevelopment being proposed or submitted through the industry/land development authority.

A contractor has to observe and comply with the Environmental Protection andManagement Order 2016 and its guidelines. The contractor has a duty to submit a writtennotification to the Authority accompanied with details in written notification of the industryactivity. Failure to comply with the written notifications to the Authority as required is guilty ofan offence and liable on conviction to a fine not exceeding $1,000,000, imprisonment for aterm not exceeding 3 years or both.

Tax legislation

As an incorporated entity, Benteng Brunei, is subject to the Income Tax Act (Cap. 35)Laws of Brunei.

Companies are required to file their income tax returns annually as per section 52 of theIncome Tax Act. It can be filed electronically via a system introduced by the Revenue Divisionof the Ministry of Finance known as The System for Tax Administration and Revenue Services(STARS). If a private company’s revenue does not exceed BND1 million, the company is notrequired to submit audited financial statements to the Collector of Income Tax. The tax rate forresident and non-resident companies is 18.5 percent for year of assessment 2016 andsubsequent years of assessment.

There are several mandatory administrative duties in compliance with the tax legislationnamely:

(i) Upon registration with the Registrar of Companies, businesses must registerelectronically with the revenue division of the Ministry of Finance using the STARSonline portal;

(ii) A company is required to submit its estimated chargeable income to the Collector ofIncome Tax within three months of the end of the accounting period related to thatyear of assessment. A company must file its final income tax return by June 30 of theyear of assessment; and

(iii) Companies are required to keep records of business transactions going back sevenyears to enable the Collector of Income tax to determine the correct amount of taxthe company is liable for.

The period of assessment is on a preceding year basis, where a calendar year endingDecember 31 is adopted as the basis period.

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Among the types of income that are subjected to tax are:

• Gains or profits from any trade, business or vocation;

• Gains or profits from any employment;

• The net value of land and improvements;

• Dividends, interest or discounts;

• Any pension, charge or annuity; and

• Rents, royalties, premiums and any other profits arising from property.

All expenses wholly or exclusively incurred in the production of taxable income are

allowable as deductions for tax expenses. These deductions include:

• Interests on borrowed money used in acquiring income;

• Rent on land and buildings used in trade or business;

• Costs of repair or premises, plant and machinery;

• Bad debts and specific doubtful debts, with any subsequent recovery being treated

as income when received;

• Employers’ contributions to approved pensions or provident funds, such as Tabung

Amanah Pekerja (TAP) or the Supplement Contributory Pension Fund; and

• Zakat, fitrah or any religious dues, payment of which is made under any written law.

Expenses not allowed as deductions for tax purposes include:

• Expenses not wholly or exclusively incurred in acquiring income;

• Domestic private expenses;

• Any capital withdrawal or any sum used as capital;

• Any capital used in improvements apart from replanting of a plantation;

• Any sum recoverable under an insurance or indemnity contract;

• Rent or repair expenses not incurred in the earning of income; and

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• Payments to any unapproved pension or provident funds.

The Income Tax Act requires that any person who makes a payment of a specified nature

to a non-resident to withhold tax at a rate prescribed at a percentage of that payment. The

amount withheld, i.e. the withholding tax, must also be paid within 14 days to the Collector of

Income Tax. Under the Act, the following incomes of non-resident sourced from Brunei are

subject to withholding tax:

(i) Dividends are not subject to withholding tax in Brunei Darussalam.

(ii) Royalties paid to a non-resident are subject to withholding tax at a rate of 10 percent,

provided the non-resident is not effectively connected to a permanent establishment

(PE) in Brunei.

(iii) Interest payments made to a non-resident are subject to withholding tax at a rate of

15 percent, provided the non-resident is not effectively connected to a PE in Brunei.

(iv) Other withholding tax rates on payments to non-residents include technical

assistance and service fees (20 percent), management fees (20 percent), rent of

movable property (10 percent) and directors remuneration (20 percent).

LAWS AND REGULATIONS IN INDONESIA

A foreign investor which intends to establish a business in Indonesia must comply with

certain regulations related to the investment sector. In general, investment activities in

Indonesia are regulated by Law No. 25 of 2007 on Investments (“Investment Law”). Currently,

investment activities in Indonesia are being coordinated and supervised by Badan Kordinasi

Penanaman Modal (“BKPM”) as the authorised authority in the investment field.

Negative list of investments

After the implementation of the Investment Law, the President has issued the President

Regulation No. 77 of 2007 dated 3 July 2007 which has been amended several times, by

President Regulation No. 36 of 2010 on 25 May 2010, by President Regulation No. 39 of 2014

on 23 April 2014, and lastly amended by President Regulation No. 44 of 2016 dated 12 May

2016 on the List of the Lines of Business which are Closed and Open with Certain

Requirements Related to Investments (“PR No. 44/2016”).

Based on the PR No. 44/2016, any construction services using high technology and/or

involving high risk and/or the value of the project is more than Rp. 50 billion (fifty billion Rupiah)

is open for foreign investment with a maximum foreign ownership up to 67%.

Benteng Indonesia was established with 67% foreign shares ownership, and therefore

has complied with PR No. 44/2016.

REGULATORY OVERVIEW

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Based on the Construction Licence of Benteng Indonesia Number: 1441/I/IU/PMA/2017

dated 23 October 2017, we note that the company has obtained construction licence with a

sub-qualification B2 of large scale business, and sub-classification SI001 to carry out the

activities of construction service for the construction of waterways, port, dam, and other water

resources infrastructure.

General investment licencing requirements

A foreign investor which intends to establish a business in Indonesia must comply with

certain regulations related to the investment sector. In general, investment activities in

Indonesia are regulated by Law No. 25 of 2007 on Investments (“Investment Law”). Currently,

investment activities in Indonesia are being coordinated and supervised by Investment

Coordination Board (Badan Kordinasi Penanaman Modal – “BKPM”) as the authorised

authority in the investment field.

Previous Procedures on Investment Licencing and Facilities in accordance with

Regulation of the Chairman of BKPM No. 14 of 2015 on Guidelines and Procedures on

Investment Principle Licences

Under Indonesian laws, foreign investors can make its investments through the

establishment of a foreign investment company (commonly known as Perusahaan

Penanaman Modal Asing – “PMA Company”). In relation to the general procedures for

investment application, the application to establish a PMA Company must be submitted to

BKPM.

According to the Regulation of the Chairman of BKPM No. 14 of 2015 on Guidelines and

Procedures on Investment Principle Licences (“BKPM Regulation No. 14/2015”), the first

licence to be obtained with regards to establish a PMA Company is an In-Principle Licence

(Izin Prinsip) issued by the BKPM. Generally, this In-Principle Licence will be valid for a certain

period of time with the maximum of 5 years depending on the PMA Company’s business

activities.

Within such time period, the PMA Company shall prepare its operational

activity/commercial production. Once the PMA Company is ready to conduct its operational

activity/commercial production, Regulation of the Chairman of BKPM No. 15 of 2015 on

Guidelines and Procedures on Investment Licences (“BKPM Regulation No. 15/2015”) and

Non-Investment Licences and Ministry of Public Works Regulation No. 03 of 2016 on the

Guidelines of the Issuance of the Foreign Investment Construction Entity Licence (“MPW

Regulation No. 03/2016”) as amended by Ministry of Public Works Regulation No. 30 of 2016

on Amendment of Ministry of Public Works Regulation No. 03 of 2016 on the Guidelines of the

Issuance of the Foreign Investment Construction Entity Licence (“MPW Regulation No.

30/2016”) requires the PMA Company to obtain a Permanent Business Licence known as the

Construction Services Licence for Foreign Investment (Izin Usaha Jasa Konstruksi Dalam

Rangka Penanaman Modal Asing – “IUJK PMA”) from BKPM which will be valid for three years

which can be extended to conduct its operation in Indonesia.

REGULATORY OVERVIEW

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Benteng Indonesia has obtained In-Principle Licence of Foreign Direct InvestmentApproval number: 2445/1/IP/PMA/2016 dated 9 September 2016 in conjunction with In-Principle Licence Alteration Number 3484/1/IP-PB/PMA/2017 dated 26 September 2017(“In-Principle License”) issued by the Investment Coordinating Board (Badan KoordinasiPenanaman Modal – BKPM) which was valid until 9 September 2019. Benteng Indonesia hasalso obtained Construction License (IUJK PMA) Number: 1441/I/IU/PMA/2017 dated 23October 2017.

New Procedures on Investment Licensing and Facilities in accordance with Regulationof the Chairman of BKPM No. 6 of 2018 on Guidelines and Procedures for theImplementation of Capital Investment Licensing and Facilities

To implement: (i) Presidential Regulation No. 91 of 2017 on the Acceleration of BusinessImplementation, and (ii) Government Regulation No. 24 of 2018 on the ElectronicallyIntegrated Business Licensing Service (“GR No. 24/2018”) which was issued, enacted andeffective on 21 June 2018, BKPM issued Regulation of the Chairman of BKPM No. 6 of 2018on Guidelines and Procedures for the Implementation of Capital Market Licensing andFacilities (“BKPM Regulation No. 6/2018”) dated 19 July 2018. BKPM Regulation No. 6/2018which was enacted and effective as at 20 July 2018 replace the entire Regulation of theChairman of BKPM No. 13 of 2017 (“BKPM Regulation No. 13/2017”).

Pursuant to BKPM Regulation No. 6/2018, BKPM will only be in charge to processlicenses for particular line of businesses. The licenses for the other line of business will beprocessed by Online Single Submission (“OSS”) Agency in accordance with GR No. 24/2018.

The followings are licenses to be processed by BKPM:

1. Energy and mineral resources, subsector of electricity, i.e:

(a) Geothermal; and

(b) Geothermal pre-liminary survey and exploration.

2. Energy and mineral resources, subsector of oil and gas, i.e:

(a) Permit to use oil and gas data;

(b) Permit to conduct survey;

(c) Permit to store oil and gas;

(d) Permit to process oil and gas;

(e) Permit to transport oil and gas;

(f) Permit for general trading of oil and gas;

(g) Permit for foreign representative office of oil and gas subsector.

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3. Energy and mineral resources, subsector of mineral and coal, i.e:

(a) Mining business license for exploration;

(b) Termination of Mining License after the license is returned by the license holder

to the government;

(c) Mining business license for production operation specifically for transportation

and trading including its extension;

(d) Mining business license for production operation and its extension;

(e) Mining business license for production operation specifically for processing

and/or refinery and its extension;

(f) Temporary license to transport and trade;

(g) Mining business license for production operation specifically for trading; and

(h) Mining business license for mining service and its extension.

4. Public works and housing, i.e:

(a) Business license for property development business; and

(b) Housing business license.

5. Custom and excise as well as tax facilities, i.e:

(a) The granting of facilities to import machineries, capital goods and materials for

investment in the industrial business activities and industry that provide

services;

(b) The granting of facilities to import machineries, capital goods for electricity

sector;

(c) The granting of facilities to import machineries, capital goods for contract works

and coal mining business contract;

(d) To propose tax exemption or tax holiday; and

(e) To propose tax allowance in certain business areas.

REGULATORY OVERVIEW

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6. Investment sector, i.e:

(a) License for Foreign Representative Office;

(b) License to open branch office for the sectors stated in point 1 to 4 above,

provided that the Business License will be issued by the one stop service

agency in BKPM;

(c) Recommendation of limited stay visa for shareholders;

(d) Recommendation to change visiting permit to become limited stay permit; and

(e) Recommendation to change status of limited stay permit to become permanent

stay permit.

Pursuant to GR No. 24/2018 licenses for the following line of businesses will be handled

by OSS Agency:

1. Electricity;

2. Agriculture;

3. Environment and Forestry;

4. Public Work and Housing (construction services is included in public work sector);

5. Maritime and Fishery;

6. Health;

7. Food and Drugs;

8. Industry;

9. Trading;

10. Transportation;

11. Communication and Information;

12. Financial Services;

13. Tourism;

14. Education and Culture;

REGULATORY OVERVIEW

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15. Higher Education;

16. Religious sector;

17. Employment sector;

18. Police sector;

19. Cooperation and micro, small and medium business; and

20. Nuclear Power sector.

Other line of business not included in the list above, will be processed by the respective

government agency in accordance with the specific line of businesses.

A limited liability company may register to obtain Business License prior to the

commencement of its commercial activities, by submitting application through online

registration at OSS managed by OSS Agency. Until the Latest Practicable Date, OSS Agency

has not been established, therefore the system is temporarily operated by the Coordinating

Ministry for Economic Affairs.

Business License is a license issued by OSS Agency to enable an applicant to register

and commence its business activities until before it will commence its commercial or

operational activities upon complying the requirements and/or its commitment letters

submitted to OSS (“Commitment Letter”) during the registration stage.

Once the company has ready to commence its commercial activities it will apply for

Commercial/Operational License. Commercial/Operational License are licenses issued by

OSS Agency to a business entity after it has obtained Business License and for the purpose to

commence its commercial/operational activities by complying with the requirement and/or its

Commitment Letter.

OSS is an integrated licensing system for the processing of business licenses for and on

behalf of ministries, heads of agencies, governors, regents and mayors.

The OSS system is to be utilized in order to process the following:

1. Businesses Identity Numbers (Nomor Induk Berusaha – “NIB”);

2. Business licenses;

3. Commercial/Operational Licenses; and

4. Foreign-Worker Recruitment Plans (Rencana Penggunaan Tenaga Kerja

Asing/RPTKA).

REGULATORY OVERVIEW

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NIB

Prior to applying for Business Licences, Commercial licences/Operational Licences,

company is firstly required to apply for NIB via the OSS system. An NIB is a 13-digit security

number that will serve as the identity of a business and which can be used in order to apply for

Business Licences, Commercial Licences/Operational Licences through the OSS.

In order to obtain NIB, company is firstly required to register with the OSS system by

submitting certain information, including among others:

(a) Citizenship identity number (for individual applicants);

(b) Deed of establishment number (for non-individual applicants); and

(c) Business sector (for both types of applicant).

NIB will be granted to applicants who have already input the abovementioned data into

the system and has obtained Taxpayer Identification Numbers (Nomor Pokok Wajib Pajak –

“NPWP”). If an applicant does not have an NPWP, it can also apply for such licence through the

OSS.

NIB will also function as:

(a) Company Registration Certificate (TDP), Import Identification Number (API) and

customs access; and

(b) Proof of participation in the Social Security for Health (BPJS Kesehatan) and

Manpower (BPJS Ketenagakerjaan) programmes.

NIB will remain valid for as long as the company is still conducting its business operations

in accordance with the prevailing laws and regulations. It will be revoked in the event: (i) the

company conduct activities those are prohibited by the terms of NIB, and/or (ii) the NIB is

declared null and void based on a binding court decision.

Business Licences

Once NIB has been issued, the company can submit application for Business Licence.

Article 31 paragraph (2) of GR No. 24/2018 sets out 2 (two) types of businesses that

require Business Licence, i.e: (i) company which does not require any infrastructure for its

activities, and (ii) company which require certain infrastructure for its business activities.

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The OSS Agency may issue Business Licenses by relying on the Commitment Letterissued by the company which carries out the following business activities:

(a) Company which does not require any infrastructure for its business activities; and

(b) Company which requires certain infrastructure for its business activities and hasalready owned the required infrastructure.

OSS Agency will issue Business License to company which requires certaininfrastructure but has not acquired such infrastructure by relying on the following CommitmentLetters to be issued by the company to OSS:

(a) Commitment Letter to process Location permit;

(b) Commitment Letter to process Water location permit;

(c) Commitment Letter to process Environmental license; and/or

(d) Commitment Letter to process Building construction permit (Izin MendirikanBangunan – “IMB”).

The company is required to provide compliance evidence to the Commitment Letter toOSS Agency in accordance with the following timeframe:

License Timeframe

Location permit

Water location permit

Company is required to submit evidence of compliance

to its Commitment Letter within 10 days of the relevant

permit being issued by OSS Agency

Environmental license Company is required to submit evidence of compliance

to its Commitment Letter for the fulfillment of

Environmental Management Efforts and Environment

Monitoring Efforts (UKL-UPL) within 10 days of the

relevant environmental license being issued by the

OSS Agency.

Company is required to submit evidence of compliance

to its Commitment Letter for the fulfillment of

Environmental Impact Analysis (AMDAL) within 30

days of the relevant environmental license being

issued by the OSS Agency.

IMB Company is required to submit evidence of compliance

to its Commitment Letter for the fulfillment of IMB from

the relevant authorities via the OSS within 30 days

after the issuance of such IMB.

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Once a Business License has been issued, the company may conduct the following

activities:

(a) Procurement of land, human resources, facilities and infrastructure;

(b) Construction and operation of buildings;

(c) Commissioning activities; and

(d) Production activities; and so forth.

Commercial/Operational Licenses

Commercial/Operational Licenses will be issued by OSS Agency by relying on the

fulfillment of the Commitment Letter in compliance with the following:

(a) Standards, certificates and/or licenses; and/or

(b) Registration of goods/services.

Commercial/Operational licenses will remain valid in accordance with the relevant validity

period upon the fulfillment of the conditions stated in the Commitment Letter by the company.

Transitional Provisions

GR No. 24/2018 has stipulated that any application of business licenses submitted but not

yet issued by the government prior to the date of this regulation will be processed by OSS.

On the other hand, company which has obtained its Business License and/or

Commercial/Operational License prior to the date of GR No. 24/2018 will be subject to the

following requirements:

(a) Application and submission of the license to develop/expand its business activities

or commence its commercial/operational activities will be processed through OSS

by completing the data, Commitment Letter, and/or fulfillment of the Commitment

Letter based on GR No. 24/2018; and

(b) Business License and/or Commercial/Operational License which has been obtained

by the company will remain valid in accordance with its line of business.

Benteng Indonesia has obtained its Business and Operational/Commercial License and

pursuant to GR No. 24/2018 will remain valid in accordance with its terms stated in each

licenses.

REGULATORY OVERVIEW

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In addition, a PMA Company has an obligation to periodically submit a semi-annual basis

Capital Investment Activities Report (Laporan Kegiatan Penanaman Modal – “LKPM”) to the

BKPM. Pursuant to Article 33 of BKPM Regulation No. 14/2017, failure to submit the

semi-annual report to BKPM for 3 (three) period of time consecutively will be imposed to the

following sanctions/consequences:

i. Administrative sanction in form of first and last warning; and/or

ii. Revocation of any related investment licenses if the violation keeps continue.

In connection with In-Principle Licenses, BKPM Regulation No. 13/2017 has enabled

that:

i. Companies that have obtained an investment registration that has been issued

based on Head of BKPM Regulation No. 12 of 2009 on Guidelines and Procedures

of Capital Investment Licensing must apply for a business license within six months

after the effective date of Regulation 13. Otherwise, BKPM or the relevant

investment board may revoke the investment registration.

ii. In-Principle licenses issued before GR No. 24/2018 will still be valid until the expiry

of the license. However, if a foreign investor is submitting an application for a

business license based upon such In-Principle License after the issuance of GR No.

24/2018, the process of the business license will be subjected to provisions under

GR No. 24/2018.

Benteng Indonesia investment licenses status

In relation with its legal status, Benteng Indonesia has obtained In-Principle License

Number: 2445/1/IP/PMA/2016 which was issued by BKPM on 9 September 2016 (as amended

by Foreign Investment Registration No. 547/II/PI-PB/PMA/2018 dated 13 March 2018) in

conjunction with In-Principle License Alteration Number 3484/1/IP-PB/PMA/2017 dated 26

September 2017. With the existence of the new BKPM Regulation, Article 126(3) of BKPM

Regulation No. 13/2017 has stipulated that In-Principle License of Benteng Indonesia will still

be valid and binding until the expiration of the license. However, if there is any change of data

from such In-Principle Licenses, the process of the amendment will be conducted in

accordance with GR No.24/2018.

General company licensing requirements

Aside from the requirement to obtain investment and technical related license that is

related with the company’s business activity, Benteng Indonesia is also required to obtain

several other general licenses under the Indonesian laws. In accordance with Law No. 3 of

1982 on Company Registration Certificate (“Law No. 3/1982”), every limited liability company

that is established and conducts its activity within the territory of Indonesia must be registered

in the Ministry of Trade. Once registered, the company will be given a Company Registration

REGULATORY OVERVIEW

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Certificate (Tanda Daftar Perusahaan – “TDP”) that will be valid for five years and must be

renewed no longer than three months before its expiry date. Furthermore, companies are also

required to obtain a Certificate of Domicile (Surat Keterangan Domisili Perusahaan – “SKDP”)

that is issued by the local regional government. Pursuant to Article 32 of Law No. 3/1982, for

a limited liability company that is intentionally or because of its omission failed to register their

company, will be imposed by sanction in form of:

i. Fine in the maximum amount of IDR 3 Million; or

ii. Imprisonment for up to 3 (three) Months.

It should be noted as well that based on the Law No. 226 of 1926 on Nuisance Permit, any

company conducting its business/activity in a certain location which pose danger, harm and

disruption must obtain a business location permit (Surat Izin Tempat Usaha – “SITU”). The

ancillary regulation to this law is the Ministry of Domestic Affairs Regulation No. 27 of 2009 on

Guidelines for the Determination of Nuisance Permit, (“MODA Regulation No. 27/2009”).

Based on MODA Regulation No. 27/2009, the application and issuance for SITU will be further

governed by the relevant regional government in which the location concerned is situated.

On 30 March 2017, Ministry of Domestic Affairs issued Ministry of Domestic Affairs

Regulation No. 19 of 2017 on The Revocation of Ministry of Domestic Affairs Regulation

Number 27 Of 2009 on Guidance for the Guidelines for the Determination of Nuisance Permit

as amended with Ministry of Domestic Affairs Regulation Number 22 of 2016 on Amendment

to the Ministry of Domestic Affairs Regulation Number 27 of 2009 on Guidelines for the

Determination of Nuisance Permit (“MODA Regulation No. 19/2017”). The revocation of

MODA Regulation No. 27/2009 does eliminate the company’s requirement to obtain Nuisance

Permit.

With regards to Benteng Indonesia general company licenses, Benteng Indonesia has

obtained the following general licenses:

i. TDP Number: 02519/24.3.0/31.72/-1.824.271/2016 which was issued by the PTSP

Office of North Jakarta (valid until 5 October 2021);

ii. SKDP Number: 2142/27.1BU.0/31.72.05.1003/-071.562/2016 which was issued by

the head of PTSP Office of Sub-District Ancol;

Due to the revocation of MODA Regulation No. 27/2009 which eliminate the company’s

requirement to obtain SITU, Benteng Indonesia does not have to apply for SITU.

REGULATORY OVERVIEW

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Construction services regulation

Qualification and classification of construction services company

In Indonesia, construction activities are generally governed under the Law No. 18 of 1999

on Construction Services (“Previous Construction Services Law”) and have been revoked

by Law No. 2 of 2017 on Construction Services (“Construction Services Law”).

Construction services are defined by Article 12 of Construction Services Law as any

services involve either construction consultation and/or construction work. Article 4 of

Construction Services Law sets out three types of construction service, specifically:

i. Construction consultation businesses (usaha konsultansi konstruksi);

ii. Construction work businesses (usaha pekerjaan konstruksi); and

iii. Integrated construction work businesses (usaha pekerjaan konstruksi terintegrasi).

The construction-consultation and construction-work businesses described in point a and

b above are further subdivided by Article 13 and 14 of Construction Services Law into general

and specialist services, as further outlined below:

General Specialist

Construction-

consultation

businesses

Business

classification/scope:

a. Architecture;

b. Engineering;

c. Integrated

engineering; and

d. Landscape

architecture and

spatial planning.

Business


a. Scientific and

technical

consultations; and

b. Examination and

technical analysis.

REGULATORY OVERVIEW

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General Specialist

Business activities:

a. Assessments;

b. Planning;

c. Design;

d. Supervision; and/or

e. Construction

management.


a. Surveying;

b. Technical

examinations; and/or

c. Analysis.

Construction-work

businesses

Business


a. Buildings; and

b. Civil construction.

Business


a. Installations;

b. Special construction;

c. Pre-fabricated

construction;

d. Building finishing; and

Tool rentals.


a. Construction;

b. Maintenance;

c. Demolition; and/or

d. Reconstruction.

Business activities include

construction work relating

to certain parts of buildings

or the construction of other

physical forms.

In regard to integrated construction-work businesses, Article 15 of Construction Services

Law describes two types of classification, namely:

i. Buildings; and

ii. Civil construction.

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Moreover, the activities which are covered under the integrated construction-work

business type consist of:

i. Building plans; and

ii. Engineering, procurement and execution.

Pursuant to Article 16 of Construction Services Law, any revisions which are made to the

above types of construction services will be based on the various classifications which are set

out under the Central Product Classification (“CBC”) and KBLI for construction services.

Article 20, 21, 22 and 23 of Construction Services Law classifies three types of business

scale which impact upon market segmentation, as described in the table below:

Business Scale Market Segmentation

Small This market segment encompasses:

a. Low risk;

b. The use of low-level technology; and/or

c. Low costs. (Max. IDR2.5 billion)

This market segment is assign for Individual or Small

Business Entity

Medium This market segment encompasses:

a. Medium risk;

b. The use of medium-level technology; and/or

c. Medium costs. (IDR2.5 billion – IDR50 billion)

This market segment is assign for Medium Business Entity

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Business Scale Market Segmentation

Large This market segment encompasses:

a. High risk;

b. The use of high technology; and/or

c. High costs. (more than IDR50 billion)

This market segment is assign for Business Entity qualified

as legal entity and Representative of Foreign Construction

Services Business Entity

Construction services comprise of two main activities, specifically:

i. Construction service activities; and

ii. Building procurement activities.

Construction service activities, as discussed above, encompass both construction

consultation and construction work services. Meanwhile, Article 1 Number 4 of Construction

Services Law stipulates that building procurement activities encompass activities which

accommodate ownership, possession and utilisation and/or which are aimed at improving

buildings.

In accordance with Article 38 of Construction Services Law, both construction service

activities and building procurement activities can be undertaken through a process of self

construction or through cooperation with other entities. Activities which are undertaken

through self construction should be self planned, self executed and/or self supervised by the

relevant ministries, institutions, officials, other government agencies and/or communities.

Meanwhile, activities involving cooperation should be based upon a construction service

arrangement or building provision agreement.

REGULATORY OVERVIEW

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Requirement and licences of construction services company

In order to engage in the construction services industry, Construction Services Law sets

out various requirements and licences which must be met, and these differ based on the types

and origins of the various parties which are trying to operate such businesses. Such

requirements and licences are:

i. Certification for construction companies:

Article 26 of Construction Services Law stipulates the same requirements as the

Previous Construction Services Law for business entities (local and/or foreign) and

individuals that want to engage in the construction services industry. Such business

entities and individuals must possess the following:

(a) An Indonesian individual must obtained a business registration certificate

(Tanda Daftar Usaha Perseorangan – “TDUP”) issued by the relevant

regent/mayor.

(b) A business entity must obtained the following licences:

(1) Construction Business Licence (Izin Usaha Jasa Konstruksi or “IUJK”);

• issued by the relevant regent/mayor for Construction Service

Business Entity (“Badan Usaha Jasa Konstruksi – “BUJK”) or

• the Ministry of Public Works and Public Housing (“MPW”) for or

Foreign Investment Construction Service Business Entity (“Badan

Usaha Jasa Konstruksi Penanaman Modal Asing – “BUJK PMA”);

and

(2) Corporate Certificate (Sertifikat Badan Usaha or “SBU”).

Under the Previous Construction Services Law, SBU is issued by

Lembaga Pengembangan Jasa Konstruksi (“LPJK”). However, according to

Article 30 of Construction Services Law, SBU will now be issued by the MPW

through an institution to be formed by an accredited construction business

association. This means that LPJK will no longer be authorised to issue SBU

through the relevant construction business association where the company is a

member. However, institutions created under the Previous Construction

Services Law will continue their function until the new institution stipulated in

the New Construction Law has been created. Therefore, LPJK will continue to

play its role in issuing SBU until the new institution is formed.

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ii. Experience registration certificate:

In addition to an IUJK and SBU, Article 31 of Construction Services Law requires

construction services company to possess an Experience Registration Certificate (Tanda

Daftar Pengalaman or “TDPN”). Such TDPN is only required for medium and large scale

companies. In order to obtain TDPN, construction services company must register its

experience to MPW. TDPN will state at least:

(a) Names of previous projects,

(b) Names of service users,

(c) Year of implemented projects,

(d) Value of projects, and

(e) Performance status of the construction services company.

In order to obtain TDPN, only projects that has been completed and handed over to

the service users that can be registered. However, TDPN is a new requirement under the

Construction Services Law and there are no further details on the requirements and

process for obtaining TDPN. Such requirements and details will be further provided in the

future implementing regulation.

iii. Certification for engineers:

Construction Services Law changes the name of the certification for engineers,

previously known as the Certificate of Expertise (Sertifikat Keterampilan or “SKA”), to the

Work Competency Certificate (Sertifikat Kompetensi Kerja or “SKK”). Under Article 70 of

Construction Services Law, all service users and/or construction services company must

employ engineers who possess an SKK. To obtain an SKK, engineers must pass a

competency test organised by a professional certification agency. The SKK must be

registered to and issued by the MPW. However, until the implementing regulation for SKK

is issued, the SKA requirements in will continue to apply towards the application of SKK.

The application for SKA is governed in detail under Article 7 of LPJK Regulation

Number 4 of 2011 on Guidelines of Re-Registration, Validity Extension and New

Application for SKA, as amended several times and lastly with LPJK Regulation No. 5 of

2017 on Certification and Registration of Expert. The SKA/SKK will be valid for three

years and shall be renewed.

REGULATORY OVERVIEW

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In addition to the SKK, Article 72 of Construction Services Law requires engineers to

register their professional experience to the MPW, which will then issue a Professional

Experience Certificate (Tanda Daftar Pengalaman Profesional or “TDPP”). The TDPP will

state at least:

(a) Completed types of professional service,

(b) Value of construction services or projects related to the completed types of

professional service,

(c) Year of implemented projects, and

(d) Name of Employer.

iv. Tender and appointment:

Article 42 of Construction Services Law stipulates that construction projects

financed by the state budget shall be conducted through a tender or selection, using

electronic procurement, direct appointment and/or direct procurement, in accordance

with the prevailing laws and regulations. Tender or selection shall be conducted by ways

of pre-qualification, post-qualification and quick tender. Electronic procurement used

pursuant with the existing catalog. While for direct appointment, it shall only be conducted

for certain conditions, namely:

(a) Emergency response for the security and safety of the nationals,

(b) Complex projects which can only be conducted by a certain construction

services company or can only be conducted by a certain right holder,

(c) Secret projects for the interest of state security and safety, and/or

(d) Certain other conditions.

v. Affiliated construction services company:

Article 44 of Construction Services Law prohibits service users from using affiliated

construction services company for construction projects for the public interest without

undergoing a tender or selection, or electronic procurement process.

REGULATORY OVERVIEW

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vi. Specific contract requirements:

(a) Mandatory provisions in construction contracts:

Article 47 and 48 of Construction Services Law Construction Services Lawmandates a range of clauses to be included in construction work contracts, such as:

(1) Protection for third parties,

(2) Liability and risk provisions,

(3) Procedures for dispute resolution,

(4) Termination provisions, and

(5) Obligations regarding transfer of technology to be incorporated inagreements with foreign parties.

In accordance with Article 49, these clauses are also mandated for constructionwork contracts between contractors and subcontractors.

(b) Collaterals

Pursuant to Article 55 and 57, both users and construction services companiesare responsible for any construction costs which are incurred, as stated in therelevant construction contract. Therefore, users and construction servicescompanies are required to supply proof of financial ability to settle any suchobligations and/or demonstrate a commitment to engage with the relevantconstruction contract in the form of collateral. Such collateral may take the form of:

(1) Tender collateral, which refers to any collateral which is deposited byselection candidates with the procurement unit before the due date of therelevant tender;

(2) A performance bond;

(3) Down-payment collateral, which refers to any collateral which is depositedby a construction services company before they receive any downpayment from their users;

(4) Maintenance collateral, which refers to any collateral which is depositedby the construction services company with the user during the relevantcoverage period (i.e. between the first handover and the second handoverof the results of any work); and/or

(5) Objection-appeal collateral, which refers to any collateral which isdeposited by any construction services company who is seeking toprocess an objection appeal.

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(c) Governing language:

In the Previous Construction Services Law, clauses of an English language

contract could prevail in the event of any discrepancy between it and the Bahasa

Indonesian version. Under Article 50 of Construction Services Law, if a foreign party

is involved, the works contract must be drafted in bilingual where one of the

language must be Bahasa Indonesia. In the event of a dispute with a foreign party,

the Bahasa Indonesian language version will prevail.

(d) Mandatory use of Rupiah:

Prices quoted and payment under a contract must be denominated in Rupiah

for any construction project conducted within Indonesia.

(e) Subcontractors:

Pursuant to Article 53 and its stipulation of Construction Services Law, main

work, defined as work with the highest risk of causing delay to the completion of a

construction project, can only be given to specialised contractors approved by the

user. Supporting work, which encompasses any work other than the main work, can

only be undertaken by small-scale subcontractors. Construction Services Law also

carries administrative sanctions in the form of written warnings, administrative fines,

and licence suspensions for breach of these conditions by building contractors.

(f) Dispute resolution:

Article 88 of Construction Services Law provides new mechanisms for settling

disputes that arise out of construction contracts. Parties to a dispute should initially

deliberate with the aim of reaching a consensus on the issues in dispute. If no

consensus can be reached, Construction Services Law regulates alternative dispute

resolution, encompassing mediation, conciliation and arbitration. Additionally, it

provides for a Dispute Board (Dewan Sengketa), comprised of impartial and

professional members, to be nominated by parties to the construction contract.

vii. Security, health and safety, and construction sustainability:

Article 59 of Construction Services Law stipulates that both users and construction

services company have to comply with various rules relating to security, health and

safety, and the sustainability of construction standards (“Standards”), and these

Standards are to be regulated by the relevant technical ministries. The Standards

encompass the following areas:

(a) Materials;

(b) Equipment;

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(c) Security and safety;

(d) Procedures;

(e) Quality of work;

(f) Maintenance;

(g) Worker-protection programmes; and

(h) Environmental protection.

In order to ensure that the abovementioned standards are met, both users and

construction services company are required to offer their mutual consent regarding the

following matters:

(a) The results of any construction assessment, planning and/or drafting process;

(b) The formulation of any technical process which relates to construction,

maintenance, demolition and/or reconstruction;

(c) The implementation of any construction, maintenance, demolition and/or

reconstruction activity;

(d) Use of materials, tools and/or technology; and/or

(e) Construction-service results.

viii. Employees and foreign workers:

Article 68 of Construction Services Law sets out more detailed requirements for

employees undertaking construction work, who are grouped as being, either operator,

technician, analyst or expert. As explained above, employees working in construction

services must obtain and register SKA/SKK and other related certificates from MPW.

Specifically for foreign employee, Construction Services Law requires construction

services company to obtain relevant licences before employing foreign construction

workers, who are limited to holding certain positions within construction services

company. Article 74 of Construction Services Law allows for foreign citizens to work

within the construction services industry in Indonesia, subject to various limitations which

are set out under the applicable laws and regulations. In this regard, any employers of

foreign workers must first secure approval for their Foreign Worker Recruitment Plans

(Rencana Penggunaan Tenaga Kerja Asing – “RPTKA”) and should also secure Foreign

Worker Recruitment Permits (Izin Mempekerjakan Tenaga Kerja Asing – “IMTA”).

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Article 74 of Construction Services Law also stipulates that, any foreign workers who

are working within the construction sector within Indonesia must satisfy the following

requirements:

(a) Must be in possession of working certification from a related authority in their

country of origin;

(b) Must have secured a registration certificate from the Ministry; and

(c) Must engage in the transfer of knowledge to domestic workers.

While foreign workers may be employed as commissioners, directors and managers,

expert positions require foreign workers to obtain an additional registration certificate

from the MPW (Surat Tanda Registrasi).

ix. Construction services business license

To undertake construction services relating to the construction of wharf, docks/ports

and civil buildings in Indonesia, the MPW Regulation No.3/2016 as amended MPW

Regulation No. 30/2016, which is an ancillary regulation of Government Regulation No.

28 of 2000 on Business and the Public Role of Construction Services, as lastly amended

by Government Regulation No. 92 of 2010 (“Government Regulation No. 28/2000”),

requires that BUJK PMA must submit an application for IUJK PMA from BKPM.

Prior to applying for IUJK PMA, a construction services company must firstly make

sure that they were employing technical employees who already have SKA/SKK.

Following that, construction services company will have to obtain SBU from LPJK. The

SBU will be valid for three years and shall be renewed. The application for SBU is

governed in detail under LPJK Regulation Number 10 of 2013 on Registration of

Construction Services Business Entity, as amended several times and lastly with LPJK

Regulation Number 3 of 2017, on Certification and Registration of Construction Services

Company (“LPJK Regulation No. 3/2017”).

IUJK PMA will be issued by MPW after the entire requirements set out in Article 12

MPW Regulation No. 03/2016 and its amendment in MPW Regulation No. 30/2016 has

been fulfilled. Once IUJK PMA has obtained, it will be valid until its expiration date

mentioned in the IUJK PMA document. The IUJK PMA can be extended by following

requirements set out in Article 12 Paragraph (2) of MPW Regulation No. 03/2016 as lastly

amended by MPW Regulation No. 30/2016. IUJK PMA can be extended by submitting the

entire requirement to obtain new IUJK PMA alongside with existing IUJK PMA and

Technical Recommendation.

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Regarding the Technical Recommendation, such recommendation will be obtainedonce requested by Benteng Indonesia to Director General of Construction Developmentpursuant to Annex A of MPW Regulation No. 03/2016. Pursuant to Article 16 and 17 ofMPW Regulation No. 03/2016, the Technical Recommendation will be issued by DirectorGeneral of Construction Development based on the Technical Recommendation Reportrendered by Technical Team. Such report is based upon the monitoring and evaluation ofthe Technical Team upon the Benteng Indonesia business activity. The TechnicalRecommendation will be issued no later than 3 (three) days after Director General ofConstruction Development received the report from the Technical Team.

Pursuant to Article 89, 90 and 99 of Construction Services Law, BUJK PMA whofailed to meet its obligation to obtain licenses related to construction services such asSKA/SKK, SBU, and IUJK PMA as mentioned before, will be imposed with administrativesanction in form of:

(a) Written warning;

(b) Administrative fine;

(c) Temporary suspension of construction services; and/or

(d) Listed in the black list.

x. LKPM and annual business activity report

Other than the requirements to obtain construction license and certificate, Article 13,15(3) letter f and 19 of MPW Regulation No.3/2016 as lastly amended by MPW RegulationNo. 30/2016 also requires Benteng Indonesia to submit:

(a) LKPM to BKPM; and

(b) Annual Business Activity Report to MPW at the latest on January after thecurrent year.

Pursuant to Annex C of MPW Regulation No. 30/2016, Annual Business ActivityReport shall at least contain:

(a) Project name;

(b) Project value;

(c) Location of the project;

(d) Employer’s name;

(e) Affiliate’s name in the event of joint operation;

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(f) Schedule of project plan;

(g) Actual project schedule;

(h) Domestic material composition used in the project;

(i) List of equipment;

(j) Subcontractors list;

(k) List of foreign employee as well as its position and their job description; and

(l) Data of foreign employee and domestic companion employee as well as their

resume.

Pursuant to Article 20 of MPW Regulation No. 03/2016, BUJK PMA who failed to

submit the Annual Business Activity Report to MPW will be imposed on sanction in form

of:

(a) Written warning;

(b) Freezing of IUJK; or

(c) Revocation of IUJK

To comply with MPW Regulation No. 03/2016, Benteng Indonesia has submitted its

annual activities report.

Benteng Indonesia licenses status

With regards to Benteng Indonesia legal status, Benteng Indonesia can be considered

BUJK PMA. In accordance with Article 1 Number 5 of MPW Regulation No. 30/2016, Benteng

Indonesia is a Limited Liability Company established in the event of foreign investment

between one or more foreign investor together with one or more domestic investor. This has

been proven by the ownership of shares of Benteng Indonesia, which combine capital form

both foreign business entity and domestic business entity. Third Harbor Construction as the

foreign business entity owned 67% of Benteng Indonesia shares and the rest is owned by

PTPB or in the amount of 33%.

Benteng Indonesia has obtained SBU Number: 0531835 dated 12 October 2017 that will

be valid until the date of 11 October 2020. Benteng Indonesia has also obtained the IUJK PMA

Number: 1441/1/IU/PMA/2017 issued by the BKPM on 23 October 2017, which will be valid

until 11 October 2020.

Benteng Indonesia’s technical employees have obtained SKA and SKK license.

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Employment licenses, work safety and health requirements and employee social and

health insurance

Employment Licenses

Basic provision on manpower issues in Indonesia is generally stipulated in Law No. 13 of

2003 regarding Manpower (the “Employment Law”). Based on Article 43 of the Employment

Law in conjunction of Regulation of the Minister of Manpower Number 16 of 2015 which was

lastly amended by the Regulation of the Minister of Manpower No. 35 of 2015 on the

Procedures to Utilize Foreign Manpower (“Regulation No.16/2015”), the employer of foreign

worker must have a RPTKA from the Ministry of Manpower (“MoM”). After obtaining RPTKA,

the employer (in this sense including a PMA Company) must then obtain the IMTA. Law No. 6

of 2011 on Immigration Affairs (the “Immigration Law”) also requires that the foreign worker

residing in Indonesia shall obtain a Limited-Stay Visa (Visa Tinggal Terbatas – “VITAS”) or a

Limited-Stay Permit (Kartu Izin Tinggal Terbatas – “KITAS”). Pursuant to Article 185 of

Employment Law, if Benteng Indonesia as an employer to the foreign employee has failed to

obtain IMTA, the director of Benteng Indonesia will be imposed on sanctions in form of:

i. Imprisonment for at least 1 (one) year or at maximum for 4 (four) years; and/or

ii. Fine in the minimum amount of IDR 100 Million and maximum of IDR 400 Million.

In addition to that, Law No. 7 of 1981 on the Mandatory Manpower Report in a Company

(the “Manpower Report Law”) provides that every company in Indonesia (including PMA

Company) must submit an annual report regarding its manpower issues (known as Wajib

Lapor Ketenagakerjan – “WLTK”) to the relevant authority. The consequences for not

complying with the obligation to report WLTK pursuant to Article 10 of Manpower Report Law

are such as:

i. Fine in the amount of 1 Million IDR; or

ii. Detention for up to 3 (three) Months if the employer has failed to comply with its

obligation for the second time or more.

Benteng Indonesia has complied with the above requirements for Employment Licenses

and WLTK report.

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Pursuant to Article 108 of Employment Law and in conjunction with Minister of Manpower

Regulation No. 28 Year 2014 on Procedure of Drafting and Ratification of Company

Regulations, a company that employs at least 10 employees must have a company regulation.

Company regulation will regulate at least:

(a) Rights and obligation of Employer;

(b) Rights and obligation of Worker;

(c) Working terms and conditions;

(d) Company procedure; and

(e) Validity period of company regulation.

Pursuant to Article 111 of Employment Law, company regulation will remain to be

effective for the period of two years. The company regulation will be effective after it has been

ratified by the Ministry of Manpower.

Pursuant to Article 188 paragraph 1 of Employment Law, a company which does not have

a company regulation can be subject to a fine of minimum IDR 5 million and maximum IDR 50

million.

Benteng Indonesia has prepared Company Regulation and such Company Regulation

has already been approved by the Ministry of Manpower, as evidenced with Decree of the

Office of Man power and Transmigration in DKI Jakarta.

Work safety and health requirements

The provisions on health and safety protection are generally governed under the Law No.

1 Year 1970 on Work Health and Safety (“Work Health and Safety Law”). The provision set

out under the Occupational Health and Safety Law covers all working place conducted in the

territory of the Republic of Indonesia including work place conducted under water and/or

above water. It should be noted that the Work Health and Safety Law applies in the working

place which involves machinery, and/or any other dangerous tools that may cause harm.

The rights of the employee to have occupational health and safety protection are also

stipulated under Article 86 of the Employment Law. In addition to this, Article 87 of the

Employment Law in conjunction with Government Regulation Number 50 of 2012 on

Implementation of Work Health and Safety Management clearly stated that:

i. every company which has 100 (one hundred) or more employees, or

ii. whose works may cause harm or occupational accidents,

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must implement Work Health and Safety Management System. Any violation of Article 87 of

the Employment Law would result in administrative sanctions governed under Article 190 of

Employment Law, which are:

i. Rebuke,

ii. Written warning,

iii. Limitation of the business activities,

iv. Suspension of the business activities,

v. Annulment of approval(s),

vi. Annulment of registration(s),

vii. Temporary termination of all or parts of the production unit,

viii. License revocation.

To implement the Occupational Health and Safety requirements, the government through

the Ministry of Manpower has issued regulations to require certification of heavy equipment

and the operator of the equipment.

Benteng Indonesia owns heavy equipment i.e: (i) tractor head, (ii) mix truck, and (iii)

wheel loader.

Pursuant to Regulation of Manpower Number: PER.05/MEN/1985 (“Regulation of

Minister of Manpower No. 05/1985”), the above heavy equipment must be tested every 2

years and inspected every year by the government officer who has the expertise in work

safety. The government will issue certificate as an evidence of that a company has complied

with the test and inspection.

In addition to this, Regulation of Manpower Number: PER.09/MEN/VII/2010 (“Regulation

of Minister of Manpower No. 09/2010”) stipulates that an operator of the heavy equipment

must have certificate of competency with regard to work safety.

Failure to comply with this requirement will also cause the company to be subject to a

maximum imprisonment of 3 months or a fine.

Benteng Indonesia has obtained the certificates required by Regulation of Minister of

Manpower No. 05/1985 and Regulation of Minister of Manpower No. 09/2010.

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Employee social and health insurance

Pursuant to Article 14 and 15 of Law No. 24 of 2011 regarding Agency of Employee Social

Security (Badan Penyelenggaran Jaminan Sosial “BPJS”) (“Law No. 24/2011”), in conjunction

with:

i. Article 11 of Presidential Regulation Number 12 of 2013 on Health Security (“PR No.

12/2013”)

ii. Article 16 of Regulation of Health Security Administrator Agency Number 1 of 2014

on Health Security Implementation (“PBPJS No. 1/2014”)

iii. Article 3 (Paragraph (1) of Government Regulation No. 86 of 2013 on Guidelines of

Administrative Sanctions of Employer Besides Government and Everyone Beside

Employer, Worker, and Tuitions Recipient for Social Security Implication (“GR No.

86/2013”)

Benteng Indonesia as an employer is obliged to register for Employee Social Security

(Jaminan Sosial Tenaga Kerja – “BPJS”) which is divided into:

(a) Employment BPJS; and

(b) Health BPJS for its workers (permanent or temporary).

The employer, domestic employee, and foreign employee who work at the minimum of 6

(six) months in Indonesian territory, is obliged to obtain BPJS. Pursuant to Article 15 of PBPJS

No. 1/2014, BPJS can be registered directly by the employer, employee or by using services

from third party such as bank, association of professional, retail or other related institution.

Once the registration is deemed correct and complete, BPJS Institution will issue membership

card as a proof of registration and facility claim device for the holder.

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Once registered, the employer is obliged to pay contribution for BPJS of its employees.

The contribution shall be collected from the employer and from the employees. Once collected,

the employer shall pay the contribution through virtual account given upon registration at the

latest on the 10th day of every month.

Type of BPJS Contribution

Late Payment

Penalties Regulation

Employment Social Security:Work Accident BPJS 0.24% (low risk level) to

1.74% (very high risk

level) of the monthly

wages (to be paid by

Employer).

2% fine for every

month late

payment of the

contribution.

Government

Regulation

(“GR”) No. 44

of 2015

Casualty BPJS 0.30% of the monthly


Employer).

Pension Security

BPJS

2% of the monthly


the Employer); and

1% of the monthly

wages (to be borne

by the Employee).

GR No. 46 of

2015

Old Age Security

BPJS

3.7% of the monthly


the Employer); and

2% of the monthly

wages (to be borne

by the Employee).

GR No. 46 of

2015

Health BPJSHealth BPJS 4% of the monthly


the Employer); and

1% of the monthly


the Employee).

2% fine for every

month late

payment of the

contribution.

Presidential

Regulation

No. 111 of

2013

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The non-compliance of this obligation in Article 15 and 16 of Law No. 24/2011 inconjunction with Article 5 Paragraph (2) of Government Regulation No. 86 of 2013 onGuidelines of Administrative Sanctions of Employer Besides Government and EveryoneBeside Employer, Worker, and Tuitions Recipient for Social Security Implication (“GR No.86/2013”) will be in the form of administrative sanction of:

(a) Written warning,

(b) Fine payment, and/or

(c) Rejection to obtain public services.

The sanction will be given in stages. However, if the employer has been given a sanctionin form of point c above, then the employer will be denied from applying any licenses relatedto its employee or its business. Therefore, it is crucial for the employer to register both BPJS.

Benteng Indonesia have Obtained Employment BPJS Number 160000000131511,issued on 25 October 2016 and has register the BPJS, Health with the Entity RegistrationNumber No. 16113249, as evidenced.

Benteng Indonesia has registered its employees to participate in Employment BPJS andHealth BPJS.

Environmental protection

Law Number 32 of 2009 on Environmental Protection and Management in conjunctionwith Governmental Regulation Number 27 of 2012 on Environmental License and State ofMinister of Environmental Affairs Regulation No. 5 of 2012 on Types of Business and/orActivities that Require Environmental Impact Analysis (“AMDAL”), Benteng Indonesia throughits certified environment expert agent or body must conduct filtering process (“penapisan”)pursuant to Annex II and IV of Permen No. 5/2012 for obtaining AMDAL and the same filteringprocess pursuant to Annex I and II of Permen No. 13/2010 for obtaining EnvironmentalManagement Efforts Report and Environmental Monitoring Efforts Report (hereinafter referredtogether as “UKL-UPL”), to determine whether AMDAL or UKL-UPL that needs to be obtained.The result of the filtering process shall be submitted to Investment and Integrated ServicesBoard of respective regional government in order to be assessed by AMDAL AssessmentCommission for AMDAL submission and Head of Environment Management Body for UKL-UPL submission pursuant to respective regional regulation concerning issuance of AMDALand UKL-UKL. If the company does not need to obtain whether AMDAL or UKL-UPL, then thecompany is required to obtain Environmental Management Statement (“SPPL”) pursuant toMinister for Environmental Regulation Number 8 of 2013 on Guidelines of Evaluation andAssessment of Environmental Documents with Environmental License Issuance.

With regards to the environmental licenses of Benteng Indonesia, IUJK PMA of BentengIndonesia has set out that Benteng Indonesia has obtained SPPL Number821/SPPL/JU/VII/2017 issued by PTSP Office of North Jakarta on 2 August 2017.

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Transaction requirements

Bank of Indonesia (“BI”), as the authorised authority which supervises the monetary andthe banking system of Indonesia, issued the Regulation of BI No. 17/3 of 2015 on theMandatory Use of Rupiah in the Territory of the Republic of Indonesia (“BI Regulation No.17/3 of 2015”).

Basically, according to Article 21(1) of Law No. 7 of 2011 on Currency and its elucidation,and Article 2 of BI Regulation No. 17/3 of 2015, Rupiah as the lawful currency of Indonesiamust be used as the payment instrument for any cash and non-cash transaction conductedwithin the territory of the Republic of Indonesia (“Indonesian Territory”) that is:

i. Intended for payment purposes,

ii. Intended to fulfill obligations that must be performed by money, and/or

iii. Other financial services transactions, such as deposit money into a bank account –whether it is conducted by Indonesian or non-Indonesian parties.

Pursuant to Article 21(2) of Law No. 7 of 2011 on Currency, and Article 4 of BI RegulationNo. 17/3 of 2015, transactions that are excluded from the mandatory use of Rupiah are:

i. Transactions for implementing State Budget,

ii. Acceptance or distribution of grant from or to outside the Indonesian Territory,

iii. International trading transaction,

iv. Bank deposit,

v. International financing transaction, and

vi. Transaction in accordance to the prevailing laws and regulations.

The non-compliance to the requirements of BI Regulation No.17/3 of 2015 will be subjectto the one year imprisonment and the fine of IDR 200.000.000 (two hundred million IndonesianRupiah) – at the maximum, in accordance with Article 33 of Law Number 7 of 2011 onCurrency. Other than this criminal sanction, there are administrative sanctions in the form of:

i. Written warning,

ii. Fine of 1% (one percent) from the transaction value (the maximum fine is amountingto IDR 1,000,000,000 (one billion Indonesian Rupiah)),

iii. Prohibition to participate in payment transaction, and/or

iv. Recommended by the BI to the relevant authority for further actions.

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Nevertheless, the transitional provision of BI Regulation No. 17/3 of 2015 stipulates thatany written agreement that:

i. Relating to the mandatory transactions as mentioned above,

ii. Using the foreign currency as its payment instruments, and

iii. Signed prior to 1 July 2015; will remain valid until the expiration of such agreement.

However, this transitional provision will not be applicable for any extension and/oramendment of the said written agreement. It should be noted that the extension and/oramendment shall comprise of the period extension, the change of parties, the change of goodsand/or services price, and/or the change of object.

Mandatory use of Indonesian language

Pursuant to Article 31 of Law No. 24 Year 2009 on National Flag, Language, Emblem andSong (the “Law 24/2009”), any contract, agreement or memorandum that involves Indonesiannationals/residents (including Indonesian individual) must at least use Indonesian language(Bahasa) as one of the languages in the written contract. Failing of which, the transaction anddocument signed will be deemed null and void, based on a reason of violating the provisionsof this Law No. 24/2009.

Company annual financial statement

Pursuant to Article 2 of Decision of Ministry of Industry and TradeNo.121/MPP/Kep/2/2002 on Provision on the Submission of Company Annual FinancialStatements (“MOI Decision No. 121/2002”) i.e:

i every company which complies with one of the following criteria, i.e:

(a) the company is a public listed company;

(b) the company carries out business activities in the field of managing thecommunity’s fund;

(c) the company issues bond/commercial papers;

(d) the total assets owned by the company are at least IDR 25 billion; or

(e) the company is a borrower whose financial statement is required to be auditedbased on the requirement of the lender/bank.

ii foreign company who conduct business activities in Indonesia in accordance withthe prevailing laws and regulations, and is entitled to enter into contract; and

iii state owned companies and companies owned by regional government.

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Pursuant to Article 5 of MOI Decision No. 121/2002, by the latest of 6 months after the end

of the financial year of the company, the company must submit its audited financial statement

signed by the Board of Directors and stamped, together with the profile of the company to the

Directorate of Business Guidance and Company Registration at the Ministry of Trade.

Based on Article 13 Decision of Ministry of Industry and Trade Number:

121/MPP/Kep/2/2002 in conjunction with Article 32 of Law Number 3 of 1982, any violation to

this mandatory report requirement will cause the company to be imposed with: (i) a maximum

of 3 months imprisonment; or (ii) a fine in the maximum amount of IDR 3 million.

Taxation

The basic law on general provisions regarding taxation in Indonesia is governed by Law

Number 6 of 1983 on General Provisions on Taxation Administration. This law has been

amended respectively by: (i) Law Number 9 of 1994, (ii) Law Number 16 of 2000, (iii) Law

Number 28 of 2007 and (iv) Law Number 16 of 2009.

Tax liabilities for a particular period or year must be paid to the State Treasury through a

designated tax payment bank and then accounted for at the tax office through the filing of the

relevant tax returns. The tax payments and filing of tax returns or a particular tax must be

undertaken monthly or annually, depending upon the tax obligation in question.

The corporate income tax return must be filed annually by the end of the fourth month

after the end of the financial year. Taxypayer may extend the filing deadline for a maximum of

two months by submitting a written notice to the Directorate General of Tax before the

deadline, attaching a tentative tax calculation.

Tax payments must be made before filing the return or before filing the notification for

extension based on the tentative tax calculation. A pre-payment system operates for corporate

tax whereby monthly instalments must be paid based on the previous year’s tax liability.

Returns for transaction taxes such as withholding tax must be filed on a monthly basis.

Payments are generally required by the 10th or 15th day of the following month. Specifically for

Value Added Tax (VAT), the payment must be settled before the VAT return is filed. VAT return

filing is done on a monthly basis by the end of the following month.

Late tax payments incur penalties at 2% per month while for late reporting the

administrative penalties are between IDR 100,000.- and IDR 1,000,000.-.

The following taxes are applied in Indonesia i.e:

1. Income Tax, which is applied based on Law Number 7 of 1983 which is amended

respectively by: (i) Law Number 7 of 1991, (ii) Law Number 10 of 1994, (iii) Law

Number 17 of 2000, (iv) Law Number 36 of 2008 (“Income Tax Law”).

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Indonesia Income Tax Law distinguish between income tax on individuals andcorporate tax.

Pursuant to Income Tax Law, taxable object is income, which is defined as anyincrease in economics capacity received by or accrued by a taxpayer from Indonesiaas well as from offshore, which may be utilised for consumption or increasing thetaxpayer’s wealth, in whatever name and form, including:

(a) compensation or remuneration received or accrued in respect of employment orservice rendered, including salary, wage, allowance, honorarium, commission,bonus, gratuity, pension, or other forms of remuneration;

(b) lottery prizes, or gifts in respect of employment or activities, and reward;

(c) business profits;

(d) gains from the sale or transfer of property, including:

(i) gains from a transfer of property to a company, a partnership, and otherentity in exchange for shares or capital contribution;

(ii) gains accrued by a company, a partnership or other entities from thetransfer of property to its shareholders, partners or members;

(iii) gains from a liquidation, merger, consolidation, expansion, split-up,acquisition, or reorganisation in whatever name and form;

(iv) gains from transfer of property in the form of grant, aid or donation, unlessthey are given to relatives within one degree of direct lineage, and toreligious body, educational or other social entity including foundation,cooperative, or to any individual who conducts micro and small businesswhich stipulated by Minister of Finance, provided that aforementionedparties have no business, employment, ownership nor controlrelationship; and

(v) gains from the sale or the transfer of part or all of mining rights,participation in financing, or capitalisation in a mining company;

(e) refund of tax payments which already deducted as an expense and anyadditional payment of tax refund;

(f) interest including premium, discounts, and compensation for loan repaymentguarantees;

(g) dividends, in whatsoever name and form, including dividends from aninsurance company to its policy holders, and distribution of net income by acooperative;

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(h) royalty or compensation from the use of right;

(i) rents and other income from the use of property;

(j) annuities;

(k) gains from the discharge of indebtedness up to a certain amount stipulated by

Government Regulation;

(l) gains from foreign exchange;

(m) gains from revaluation of assets;

(n) insurance premium;

(o) contribution received by or accrued by an association from its members who

are taxpayers engaged in business or independent services;

(p) an increase in net wealth from income which has not been taxed;

(q) income from sharia business;

(r) compensation as stipulated by Laws concerning General Provisions and Tax

Procedures; and

(s) surplus of Bank Indonesia

In addition to the above, there are incomes those are subject to a final income tax as

follows:

(a) income in the form of interest from deposit and other savings, interest bonds

and state bonds, interest paid by a cooperative to its individual members;

(b) income in the form of lottery prizes;

(c) income from a transaction of shares and other securities, derivative

transactions traded in exchange, and sales of shares or transfer of capital

contribution from its company partner received by a venture-capital company;

(d) income from transfer of property such as land and/or building, construction

services business, real estate business, and renting land and/or building; and

(e) other specific incomes stipulated based on a government regulation.

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Pursuant to Article 4 paragraph 3 of Income Tax Law, the following incomes areexcluded from taxable object:

(a) (i) aids or donations, including zakat received by amil zakat board or otheramil zakat institutions established or approved by the government andreceived by eligible zakat recipients or compulsory religious donation forthe followers of religions acknowledged by the government, received byreligious institutions established and approved by the government andreceived by eligible donations recipients, which are stipulated by or basedon a government regulation; and

(ii) gifts received by relatives within one degree of direct lineage, and toreligious body, educational or other social entity including foundation,cooperative, or to any individual who conducts micro and small businesswhich is stipulated by or based on a Minister of Finance Regulation,

provided that the aforementioned parties have no business, employment,ownership nor control relationship; and

(b) inheritance;

(c) assets including cash received by an entity in exchange for shares or capitalcontribution;

(d) consideration or remuneration in the form of benefits in kinds in respect ofemployment or services received or accrued from a taxpayer or thegovernment, except given by a non taxpayer, taxpayer which is imposed byfinal tax or taxpayer using deemed profit;

(e) payments by an insurance company to an individual in connection with health,accident, life or education insurance;

(f) dividends or distribution of profit received by or accrued by a resident limitedcorporation, cooperative, state-owned enterprises, or local government-ownedenterprises through ownership in enterprise established and domiciled inIndonesia, provided that:

(i) dividends are paid out from retained earnings;

(ii) limited corporations and state-owned enterprises and local-ownedenterprises receiving the dividends must own at least 25% of the totalpaid-in capital;

(g) contributions received or accrued by a pension fund which its establishment isapproved by the Minister of Finance, either paid by an employer or anemployee;

REGULATORY OVERVIEW

– 145 –


(h) income from a capital investment of the pension fund in certain investment of

the pension fund in specific sectors as determined by the Minister of Finance

Decree;

(i) distribution of profit received or accrued by a member of a limited partnership,

whose capital does not consists of shares, partnership, association, and firm,

including a unit holder of collective investment contract;

(j) income received or accrued by a venture capital company in the form of profit

distribution of a joint venture company established and conducting business or

engage in activities in Indonesia, provided that:

(i) the investee is a micro, small, medium sized enterprise, or engaged in

activities in business sectors stipulated by or based on the Minister of

Finance Regulation; and

(ii) the investee’s shares are not traded in the stock exchange in Indonesia;

(k) scholarships that fulfil certain requirements which are stipulated by or based on

the Minister of Finance Regulation;

(l) a surplus received or accrued by an institution or a non-profit organisation

engaged in education and/or research and development, which has been listed

in corresponding institutions, which is reinvested in the forms of infrastructures

of education and/or research and development, within no more than 4 years

period of time since it is received or accrued, as stipulated by or based on the

Minister of Finance Regulation;

(m) aid or donation paid by the Social Security Agency to a certain taxpayer, as

stipulated by or based on the Minister of Finance Regulation.

Taxable object of a corporate taxpayer (which includes permanent establishment)

consist of:

(a) income from its business or activities and from its owned or controlled

properties;

(b) income of the head office from businesses or activities, sales of goods, or

furnishing services in Indonesia which are similar to those undertaken by the

permanent establishment in Indonesia;

(c) income referred to in Article 26 of Income Tax Law received or accrued by the

head office provided that the properties or activities giving rise to the aforesaid

income is effectively connected with a permanent establishment.

REGULATORY OVERVIEW

– 146 –


The tax rate applicable to each taxable income are as follow:

(a) resident individual taxpayer.

Taxable Income Tax Rate

IDR 50 million or less 5%Over IDR 50 million – IDR 250 million 15%Over IDR 250 million – IDR 500 million 25%Over IDR 500 million 30%

(b) corporate tax rate applicable to legal entity as resident taxpayer and permanentestablishment is 25%.

A Public company listed on the Indonesia stock exchange which offer at least40% of their total share capital to the public obtain a 5% tax cut, therefore taxrate of 20% applies to these public companies.

Tax rate applicable to dividend received by an individual resident taxpayer is amaximum of 10% and final in nature.

Withholding Tax

Pursuant to Article 23 of Income Tax Law, the following income shall be subject towithholding tax of:

(a) 15% of the gross amount of:

(i) Dividends;

(ii) Interest;

(iii) Royalties;

(iv) Prizes and awards, bonus, and similar paymentsother than those thathave been withheld under paragraph 1 subparagraph)e) of Article 21 ofIncome Tax Law;

(b) 2% of the gross amount of:

(i) rent and other income in connection with the use of property, except rentand other income in connection with the use of property that have beenwithheld;

(ii) compensation in connection with technical, management, construction,consultation and other services, except those that have been withheldunder Article 21 of the Income Tax Law.

REGULATORY OVERVIEW

– 147 –


Withholding tax shall not apply to:

(a) income paid or owed to a bank;

(b) lease payment in finance lease agreements;

(c) dividends excluded as taxable object and dividends received by individual

taxpayers;

(d) distributed profit those are excluded as taxable object;

(e) profit which is distributed by a cooperative to its members;

(f) income paid or payable to a financial service entity which serves as a loan

intermediary and/or financing stipulated by the Ministry of Finance Regulation.

It was stipulated in Article 26 of the Income Tax Law that the following income paid

to a non-resident company or non-resident taxpayer other than a permanent

establishment in Indonesia shall be subject to a withholding tax of 20% of the gross

income:

(a) dividends;

(b) interest including premium, discount, and compensation for loan repayment

guarantees;

(c) royalties, rent and other income in connection with the use of the property;

(d) compensation in connection with services, works and activities;

(e) prizes and awards;

(f) pension and other periodic payments;

(g) premium of swap and other hedging transactions; and/or

(h) grains from the discharge of indebtedness.

Gains from the sale or transfer of assets in Indonesia other than those which are

subject to final tax, derived by a non-resident taxpayer other than a permanent

establishment in Indonesia, and insurance premiums paid to a foreign insurance

company, shall be subject to withholding tax of 20% on the deemed profit.

REGULATORY OVERVIEW

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Monthly Tax Installment

Pursuant to Article 25 of Income Tax Law, taxpayer is required to pay monthly tax

instalment during the current taxable year where such instalment shall be equal to

the tax payable according to the tax return of the preceding year less the following:

(a) income tax withheld as referred in Article 21, Article 23 and Income Tax

withheld as referred in Article 22 of Income Tax Law; and

(b) foreign tax paid or payable that is allowable for tax credit as referred in Article

24 of Income Tax Law divided by 12 or the number of months of a fraction of the

taxable year.

Annual tax calculation

Resident taxpayers and permanent establishments are entitled to claim tax credit

against tax payable for the same taxable year, i.e:

(a) tax withheld on income from employment, personal services and activities

referred to in Article 21 of Income Tax Law;

(b) tax withheld on income in connection with payment on import activities or other

business activities referred to in Article 22 of Income Tax Law;

(c) tax withheld on dividends, interest, royalties, rent, gifts and rewards, and

compensation for services referred to in Article 23 of Income Tax Law;

(d) creditable foreign tax paid or payable on offshore income referred to in Article

24 of Income Tax Law;

(e) self tax payments during current taxable year referred to in Article 26;

(f) tax withheld on income referred to in paragraph 5 of Article 26 of Income Tax

Law.

2. Value Added Tax, which is applied based on Law Number 8 of 1983 which is

amended respectively by: (i) Law Number 11 of 1994, (ii) Law Number 18 of 2000,

(iii) Law Number 42 of 2009 (“Value Added Tax Law”).

Value Added Tax (VAT) is applicable on deliveries (sales) of goods and services

within Indonesia at a rate of 10%.

The tariff of VAT of 0% shall be applied to:

(a) Export of the tangible taxable goods;

REGULATORY OVERVIEW

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(b) Export of the intangible taxable goods; and

(c) Export of the taxable services.

The Value Added Tax Law allows the government to change the VAT rate within the

range of 5% to 15%.

3. Land and Building Tax, which is applied based on Law Number 12 of 1985 which is

amended by Law Number 12 of 1994 (“Land and Building Tax Law”).

Land and Building Tax is a property tax chargeable on all land and/or buildings

unless there is an exemption.

The tax rate is 0.5%. The actual tax due on the tax object is calculated by applying

the tax rate to the taxable sale value (Nilai Jual Kena Pajak – NJKP) of the object.

NJKP is a pre-determined proportion of the sale value of the tax object (Nilai Jual

Objek Pajak/NJOP) of a particular land and building. NJKP is stipulated at the lowest

rate of 20% and highest rate of 200% from the NJOP. NJOP are to be determined by

the Director General of Tax on behalf of the Ministry of Finance and may be updated

every one to three years depending on the economic development of the region.

The following tax objects are exempted from Land and Building Tax:

(a) Solely used for public interests in the areas of religious and social affairs,

health, education and national culture, and not for the purpose to generate

profit;

(b) Used as cemetery, ancient heritage site or similar thereto;

(c) Constituting protected forests, natural reserve forests, tourism forests, national

parks, grazing land controlled by a village and state land with no right imposed

on it;

(d) Used by a diplomatic representative, based on reciprocal treatment principle;

(e) Used by an agency or representative of an international organisation, as

determined by the Ministry of Finance.

4. Acquisition Duty of Right on Land and Building, which is applied based on Law

Number 21 of 1997 as amended by Law Number 20 of 2000 (“Law on Land Right

Acquisition Duty”).

Pursuant to Law on Land Right Acquisition Duty, an acquisition of right on land

and/or building is subject to Acquisition Duty of Right on Land and Building (Bea

Perolehan Hak Atas Tanah dan Bangunan – “BPHTB”).

REGULATORY OVERVIEW

– 150 –


BPHTB taxes are imposed on the acquisition of land and/or building as a result of:

(a) transfer of right due to: sale and purchase, exchange, grant, grant bequest,

inheritance, income in the company or other legal entity, resulted in the

separation of rights of passage, the appointment of buyers in the auction, the

implementation of judgments that have permanent legal force, mergers,

consolidation business, business expansion and gifts.

(b) granting of new right due to the continuation of releasing of right, and other than

releasing of right.

The rights of land that are subject to BPHTB are Right of Ownership, Right to

Cultivate, Right to Build, Right of Use, Right of Ownership on Strata Title, and Right

to Manage.

The taxable objects obtained by the following parties are exempted from BPHTB:

(a) diplomatic representative, consulate based on reciprocal principle;

(b) state for performing governmental duties and or development activity for public

interests;

(c) international organisation or representatives of international organisation as

stipulated by the Minister Decree provided that they neither run business nor do

other activities other than their functions and duties;

(d) individual or entity due to right conversion or due to other legal acts without any

change of name;

(e) individual or entity due to endowments;

(f) individual or entity for religious service usage.

BPHTB is payable by the purchaser with the rates of 5% of Acquisition Value of

Taxable Object (“NPOPKP”). NPOPKP is the acquisition value of tax object

(“NPOP”) reduced with the Acquisition Value of Non-Taxable Object (“NPOPTKP”).

The NPOPTKP is determined regionally at the maximum amount of IDR 60 million,

except for acquisition of rights due to inheritance, gift, grant of wills received by an

individual in the direct lineage within one degree with the grantor, including husband

or wife, in such condition the NPOPTKP is regionally determined with the maximum

amount of IDR 300 million.

REGULATORY OVERVIEW

– 151 –


OVERVIEW

Our origin can be traced back to 1989 when First Engineering Company of Third HarborBureau* (第三航務工程局第一工程公司), the predecessor of Third Harbor Construction, wasestablished as a whole people owned enterprise (全民所有制企業) in the PRC. Through aseries of internal reorganisation, our Company was incorporated as an exempted companywith limited liability in the Cayman Islands on 20 December 2017 as the holding company ofour Group, which comprises our Company, Maritime Vansun, HuaZi Rosely, EngineeringProsper, Benteng Brunei, Royal Karry, Benteng Indonesia, Shanghai Shanyu, Shanghai Yubo,Shanghai Xingning and Third Harbor Maritime. Within our Group, Third Harbor Maritime,Benteng Brunei and Benteng Indonesia are our major operating subsidiaries in the PRC,Brunei and Indonesia, respectively.

The following chart sets forth the corporate and shareholding structure of our Group priorto the Reorganisation and the [REDACTED] Investment:

Mr. Y

e K

an

gsh

un

(葉康舜

)

Mr. W

an

g X

iuch

un

(王秀春

)

Mr. L

i We

ifei (李為飛

)

Mr. L

i Ho

ng

we

i (李紅衛

)

Mr. H

ua

ng

Gu

an

min

g (黃關明

)

Mr. T

an

g J

inxin

(湯金鑫

)

Mr. P

an

Xin

fa (潘新法

)

Ms. Z

hu

We

ier (朱衛兒

)

Mr. W

an

g L

ika

i (王利凱

)

Ms. Z

ho

u M

en

g (周萌

)

Mr. S

he

n J

ian

li (沈建力

)

Mr. W

an

g S

hiq

in (王士勤

)

Mr. J

in Y

uh

ua

n (金玉煥

)

Mr. Y

an

Xin

sh

en

g (閆新生

)

Mr. L

u Y

an

g (魯楊

)

Ms. W

an

Yu

n (萬雲

)

Ms. Z

hu

Qiu

lian

(朱秋蓮

)

Mr. X

u M

ing

so

ng

(徐明松

)

Mr. W

an

g S

hiz

ho

ng

(王士忠

)

Mr. C

he

n Y

an

(陳岩

)

56.00% 8.66% 6.00% 4.00% 4.00% 4.00% 2.70% 2.06% 2.00% 1.00% 1.50% 1.36% 1.36% 1.36% 1.00% 1.00% 0.50% 0.50% 0.50% 0.50%

100%

100% 67% 33%(Note 2)100%(Note 1)

Watts Gallop (PRC)

Third Harbor Maritime

(PRC)Benteng Brunei

(Brunei)Benteng Indonesia

(Indonesia)

PTPB (Indonesia)Third Harbor

Construction (PRC)

Notes:

1. Under the laws of Brunei, a limited liability company needs to have a minimum of two shareholders. Prior toReorganisation, Benteng Brunei was held as to 50% by Mr. Tang Liang (唐亮), and 50% by a local partnernamed Mr. Yong Teck Foo. Pursuant to the separate trust arrangement between Mr. Tang and Mr. Yong TeckFoo, and Mr. Tang and Third Harbor Construction, (i) Mr. Yong Teck Foo agreed to hold 50% of the equityinterest of Benteng Brunei for and on behalf of Mr. Tang; and (ii) Mr. Tang agreed to hold the entire equityinterest of Benteng Brunei for and on behalf of Third Harbor Construction.

2. The 33% interest in Benteng Indonesia was held by PTPB in order to comply with the requirement underIndonesia law of having (i) an Indonesian citizen(s) or (ii) legal entity fully owned by an Indonesian citizen(s)as shareholder. To consolidate control over and derive the economic benefits from such 33% interest inBenteng Indonesia, Third Harbor Construction had entered into Contractual Arrangements with PTPB. Forfurther details, please refer to the section headed “Trust and Contractual Arrangements – Our ContractualArrangements for Benteng Indonesia” in this document.

HISTORY, REORGANISATION AND CORPORATE STRUCTURE

– 152 –


KEY MILESTONES

Our major corporate and business developments are set forth below:

Year Event

1989 First Engineering Company of Third Harbor Bureau* (第三航務工程局第一工程公司) was established in the PRC, with a focus on port, waterway and

marine engineering business in the PRC.

2001 First Engineering Company of Third Harbor Bureau* (第三航務工程局第一工程公司) was converted from a whole people owned enterprise into a limited

liability company, and was renamed as Shanghai Third Harbor Benteng

Construction and Engineering Co., Ltd.* (上海三航奔騰建設工程有限公司) (i.e.

Third Harbor Construction).

Third Harbor Construction undertook the Shanghai Waigaoqiao Power

Station Phase II Section 2 coal-unloading berth construction project (上海外高橋電廠二期2#標段卸煤碼頭工程) and obtained the Shanghai Marine

Engineering Outstanding Structure Shengangbei Award (上海市水運工程優質結構《申港杯》獎).

2004 Mr. Wang became the legal representative and chairman of the board of

Third Harbor Construction.

2005 Third Harbor Construction obtained the First-grade General Contractor

Qualification Certificate of Port and Waterway (港口與航道工程施工總承包壹級) from MOHURD.

2006 Third Harbor Construction was ranked in the Shanghai Construction Industry

Top 50 List in 2005 (2005年度上海建築業綜合排名50強) by the Shanghai

Statistics Modern Industrial Development Center (上海現代統計產業發展中心).

Third Harbor Construction was ranked in the Top 500 Construction

Enterprises in China (中國建築企業500強) by the Fixed-Assets Investment

Statistics Division (固定資產投資統計司) and China Industrial Information

Issuing Centre (中國行業企業信息發佈中心) of the National Bureau of

Statistics of China (中華人民共和國國家統計局).

2010 Third Harbor Construction obtained the Overseas Construction Project

Contracting Certificate (對外承包工程資格證書) from SMCOC.


– 153 –


Year Event

2011 Third Harbor Construction obtained the Top 10 Port Engineering

Construction Units in China (全國港航工程政府放心、用戶滿意十佳承建單位)

from the Engineering Construction Quality Control Association of China (中國工程建設質量管理協會).

2016 Commenced business in Brunei and Indonesia. Benteng Brunei was

incorporated in Brunei on 19 January 2016. Benteng Indonesia was

incorporated in Indonesia on 16 September 2016 and obtained its legal entity

status on 21 September 2016.

2017 Third Harbor Maritime was established in the PRC on 14 August 2017 as part

of our Reorganisation, and following the completion of the Business and

Asset Transfer Agreements, Third Harbor Maritime became our operating

subsidiary for carrying out port, waterway and marine engineering business

in the PRC.

2018 The Reorganisation was completed.

CORPORATE AND BUSINESS DEVELOPMENT HISTORY

Early history of Third Harbor Construction

Our origin can be traced back to June 1989 when First Engineering Company of Third

Harbor Bureau* (第三航務工程局第一工程公司), the predecessor of Third Harbor Construction,

was established as a whole people owned enterprise (全民所有制企業) in the PRC with a

registered capital of RMB41,798,605.76, which was funded by the then Third Harbor Bureau*

(第三航務工程局) of the PRC Government by way of both cash and fixed assets. In September

1995, the registered capital of First Engineering Company of Third Harbor Bureau* (第三航務工程局第一工程公司) was reduced to RMB30,140,000.

Conversion of Third Harbor Construction from a whole people owned enterprise (全民所有制企業) into a limited liability company

In December 2001, First Engineering Company of Third Harbor Bureau* (第三航務工程局第一工程公司) was converted from a whole people owned enterprise (全民所有制企業) into a

limited liability company and renamed as Shanghai Third Harbor Benteng Construction and

Engineering Co., Ltd.* (上海三航奔騰建設工程有限公司) (i.e. Third Harbor Construction). Upon

conversion, Third Harbor Construction had registered capital of RMB51,136,543.93 (by way of

cash and fixed assets) and was owned as to 80.44% by Third Harbor Bureau of Ministry of

Transport* (交通部第三航務工程局) and 19.56% by Zhejiang Communications Survey & Design

Co., Ltd.* (浙江交通勘察有限公司).


– 154 –


In September 2002, CEHC Third Harbor Bureau* (中港第三航務工程局) (formerly knownas Third Harbor Bureau of Ministry of Transport) transferred 40.44% equity interests toZhejiang Communications Survey & Design Co., Ltd. at a consideration of RMB20,681,926.36,which was determined after arm’s-length negotiations with reference to the then net assetvalue. Subsequent to such share transfer, Third Harbor Construction was owned as to 60%and 40% by Zhejiang Communications Survey & Design Co., Ltd. and CEHC Third HarborBureau* (中港第三航務工程局), respectively.

In June 2004, Zhejiang Communications Survey & Design Co., Ltd.* (浙江交通勘察有限公司) transferred its 60% equity interests in Third Harbor Construction to Zhejiang BentengConstruction Engineering Co., Ltd.* (浙江奔騰建設工程有限公司), which has been a non-wholly-owned subsidiary of Watts Gallop, at a consideration of RMB45,000,000, which wasdetermined after arm’s-length negotiations with reference to the then net asset value.Subsequent to such share transfer, Third Harbor Construction was owned as to 60% and 40%by Zhejiang Benteng Construction Engineering Co., Ltd.* (浙江奔騰建設工程有限公司) andCEHC Third Harbor Bureau* (中港第三航務工程局), respectively.

Subsequent to the capital injection by Zhejiang Benteng Construction Engineering Co.,Ltd.* (浙江奔騰建設工程有限公司) in Third Harbor Construction, all of its equity interests inThird Harbor Construction was transferred to Zhejiang Benteng Investment Co., Ltd.* (浙江奔騰投資有限公司) in April 2006. In November 2007, Zhejiang Benteng Investment Co., Ltd.* (浙江奔騰投資有限公司) changed its name to Zhejiang Benteng Investment Group Co., Ltd.* (浙江奔騰投資集團有限公司) (the former name of Watts Gallop). After a few respective capitalinjections by Zhejiang Benteng Investment Group Co., Ltd.* (浙江奔騰投資集團有限公司) andCCCC Third Harbor Engineering Co., Ltd.* (中交第三航務工程局有限公司) (formerly known asCEHC Third Harbor Bureau* (中港第三航務工程局) in both January and May 2008, Third HarborConstruction was owned as to 93.2% and 6.8% by Zhejiang Benteng Investment Group Co.,Ltd.* (浙江奔騰投資集團有限公司) and CCCC Third Harbor Engineering Co., Ltd.* (中交第三航務工程局有限公司), respectively.

In September 2009, CCCC Third Harbor Engineering Co., Ltd.* (中交第三航務工程局有限公司) transferred 6.80% equity interests to Watts Gallop at a consideration of RMB54,000,000,which was determined based on the appraised value of the transferred equity as at 31December 2008. Subsequent to such share transfer, Third Harbor Construction becamewholly owned by Watts Gallop with a registered capital of RMB300,800,000.

In January 2015, Shanghai Ruiyi Asset Management Co. Ltd. (上海銳懿資產管理有限公司), an Independent Third Party, injected RMB120,766,922.69 to Third Harbor Construction.Subsequent to such capital injection, Third Harbor Construction was owned as to 79.42% and20.58% by Watts Gallop and Shanghai Ruiyi Asset Management Co., Ltd., respectively.

In June 2017, Shanghai Ruiyi Asset Management Co., Ltd. transferred 20.58% equityinterests to Watts Gallop at a consideration of RMB285,618,724.88, which was determined atarm’s-length negotiations with reference to the then net asset value. Subsequent to suchshare transfer, Third Harbor Construction became wholly-owned by Watts Gallop with aregistered capital of RMB586,816,922.69.


– 155 –


Establishment of Third Harbor Maritime and transfer of the port, waterway and marine

engineering business and assets from Third Harbor Construction to Third Harbor

Maritime

Third Harbor Maritime was established in the PRC as a limited liability company on 14

August 2017 with registered capital of RMB120,000,000. At the time of its establishment, Third

Harbor Maritime was wholly-owned by Third Harbor Construction. Third Harbor Maritime is

principally engaged in port, waterway and marine engineering in the PRC.

As part of the Onshore Reorganisation, (i) on 30 November 2017, Third Harbor

Construction (as transferor) and Third Harbor Maritime (as transferee) entered into the

Business and Asset Transfer Agreements, and (ii) on 6 July 2018, Third Harbor Construction

and Third Harbor Maritime entered into the Novation Agreement. Upon completion of the

Business and Asset Transfer Agreements, Third Harbor Maritime became our operating

subsidiary for carrying out port, waterway and marine engineering business in the PRC. For

further details, please refer to the section headed “History, Reorganisation and Corporate

Structure – Reorganisation – A. Onshore Reorganisation – Transfer of business and assets

from Third Harbor Construction to Third Harbor Maritime” in this document.

Expansion of business to Brunei

We expanded our business to Southeast Asia in early 2016, following China’s Belt and

Road Initiative. Benteng Brunei was incorporated in Brunei as a limited liability company on 19

January 2016 with an authorised share capital of BN$25,000 divided into 25,000 ordinary

shares of BN$1.00 each. Upon incorporation, each of Mr. Yong Teck Foo, an Independent

Third Party, and Mr. Tang Liang (唐亮), the deputy general manager of our Group and the main

responsible person for our operation in Brunei, subscribed for one share at a subscription price

of BN$1.00 and Benteng Brunei was owned as to 50% and 50% by Mr. Yong Teck Foo and Mr.

Tang, respectively. Pursuant to the separate trust arrangement between Mr. Tang and Mr.

Yong Teck Foo, and Mr. Tang and Third Harbor Construction, (i) Mr. Yong Teck Foo agreed to

hold 50% of the equity interest of Benteng Brunei for and on behalf of Mr. Tang; and (ii) Mr.

Tang agreed to hold the entire equity interest of Benteng Brunei for and on behalf of Third

Harbor Construction.

On 15 September 2017, Mr. Yong Teck Foo transferred his one share in Benteng Brunei

to PSB, and Benteng Brunei also allotted additional 249 shares to PSB and another 24,749

shares to Mr. Tang, making Mr. Tang the holder of 24,750 shares or 99% of the issued shares

of Benteng Brunei and PSB the holder of 250 shares or 1% of the issued shares of Benteng

Brunei. Upon completion, Benteng Brunei was owned as to 99% by Mr. Tang and 1% by PSB.

Pursuant to the separate trust arrangement between Mr. Tang and PSB, and Mr. Tang and

Third Harbor Construction, (i) PSB agreed to hold 1% of the equity interest of Benteng Brunei

for and on behalf of Mr. Tang; and (ii) Mr. Tang agreed to hold the entire interest of Benteng

Brunei for and on behalf of Third Harbor Construction. As a result, Third Harbor Construction

was the 100% beneficial owner of Benteng Brunei.


– 156 –


On 19 April 2018, as part of our Offshore Reorganisation, Mr. Tang transferred his 24,750

shares in Benteng Brunei to Maritime Vansun Limited. PSB has then acknowledged that it

holds 250 shares in Benteng Brunei for and on behalf of Maritime Vansun Limited. As such,

Maritime Vansun Limited became the 100% beneficial owner of Benteng Brunei.

Please refer to the section headed “Trust and Contractual Arrangements – Our trust

arrangement for Benteng Brunei” in this document for further details of our trust arrangement

for Benteng Brunei.

Benteng Brunei is principally engaged in port infrastructure work in Brunei.

Expansion of business to Indonesia

Benteng Indonesia was incorporated in Indonesia as a limited liability company on 16

September 2016 and obtained its legal entity status on 21 September 2016 with an authorised

share capital of US$1,000,000 divided into 1,000,000 shares of US$1.00 each, of which

670,000 shares were issued at par to Third Harbor Construction, all of which were paid up, and

330,000 shares were issued at par to PTSP, an Independent Third Party in order to comply

with the requirement under Indonesia law of having an (i) Indonesian citizen(s) or (ii) legal

entity fully owned by an Indonesian citizen(s) as shareholder. Upon incorporation, Benteng

Indonesia was owned as to 67% by Third Harbor Construction and 33% by PTSP.

In order to operate our business in Indonesia, Third Harbor Construction and PTSP

entered into a cooperation agreement (amended and restated on 26 April 2018 to clarify

certain cooperation terms between Third Harbor Construction and PTSP) which was

retroactively effective as at the date of 16 September 2016 (the “PTSP Cooperation

Agreement”).

On 23 August 2017, PTSP transferred its entire 33% equity interests in Benteng

Indonesia to PTPB pursuant to the deed of sale and purchase of shares. Such transfer was

approved by the shareholders of Benteng Indonesia on 22 August 2017.

Name of shareholder

Number of

share(s)

Total nominal value

paid up %

Third Harbor Construction 670,000 IDR8,818,540,000 or

equivalent to US$670,000

67

PTPB 330,000 IDR4,343,460,000 or

equivalent to US$330,000

33

Total 1,000,000 IDR13,162,000,000 or

equivalent to US$1,000,000

100


– 157 –


During the incorporation of Benteng Indonesia, the consideration of the 330,000 sharesheld by PTSP was contributed in the form of a loan provided by Third Harbor Construction toPTSP and the relevant shares, representing 33% equity interests of Benteng Indonesia, werepledged back to Third Harbor Construction as security commencing from 16 September 2016through the following agreements, which are retroactively effective from the date of 16September 2016:

(i) a loan agreement entered into between PTSP and Third Harbor Construction on 20October 2016, pursuant to which Third Harbor Construction agreed to provide a loanto PTSP in the sum of US$330,000 for the purpose of investing into BentengIndonesia (the “PTSP Loan Agreement”);

(ii) a pledge of shares agreement entered into between PTSP and Third HarborConstruction on 20 October 2016, pursuant to which PTSP pledged its 330,000shares, representing 33% equity interests in Benteng Indonesia to Third HarborConstruction (the “PTSP Pledge of Shares Agreement”);

(iii) an assignment of rights to dividends agreement entered into among PTSP, BentengIndonesia and Third Harbor Construction on 26 April 2018, pursuant to which PTSPagreed to assign all of its rights to receive dividends on the 330,000 shares ownedby PTSP to Third Harbor Construction (the “PTSP Assignment of Rights toDividends Agreement”);

(iv) an option agreement entered into between PTSP and Third Harbor Construction on26 April 2018, pursuant to which PTSP agreed to grant option to Third HarborConstruction to purchase the 330,000 shares owned by PTSP in Benteng Indonesia(the “PTSP Option Agreement”);

(v) a power of attorney to sell entered into between PTSP and Third HarborConstruction on 26 April 2018, pursuant to which PTSP agreed to grant power ofattorney to Third Harbor Construction to sell the 330,000 shares owned by PTSP inBenteng Indonesia (the “PTSP Power of Attorney to Sell”); and

(vi) a power of attorney to vote entered into between PTSP and Third HarborConstruction on 26 April 2018, pursuant to which PTSP agreed to grant the power ofattorney to Third Harbor Construction to vote in the shareholders’ meeting torepresent the 330,000 shares owned by PTSP in Benteng Indonesia (the “PTSPPower of Attorney to Vote”).

On 23 August 2017, PTSP transferred its 330,000 shares in Benteng Indonesia to PTPBby entering into a deed of sale and purchase of shares (No. 1536). Subsequent to this sharetransfer, the following agreements were entered into:

(i) the first novation cooperation agreement dated 26 April 2018 which was retroactivelyeffective as at the date of 23 August 2017 executed by and between PTSP, PTPBand Third Harbor Construction, where PTSP has novated and assigned its entirerights and liabilities over the PTSP Cooperation Agreement to PTPB (the “PTPBCooperation Agreement”);


– 158 –


(ii) a novation agreement to loan agreement dated 26 April 2018 which was retroactivelyeffective as at the date of 23 August 2017 executed by and between PTSP, PTPBand Third Harbor Construction, where PTSP has novated and assigned its entirerights and liabilities over the PTSP Loan Agreement to PTPB;

(iii) a termination agreement to pledge of shares agreement dated 26 April 2018 whichwas retroactively effective as at the date of 23 August 2017 executed by andbetween PTSP and Third Harbor Construction to terminate PTSP Pledge of SharesAgreement;

(iv) a pledge of shares agreement dated 26 April 2018 which was retroactively effectiveas at the date of 23 August 2017 executed by and between PTPB, Third HarborConstruction and Benteng Indonesia, where PTPB has pledged its 330,000 sharesin Benteng Indonesia to Third Harbor Construction;

(v) a termination agreement to assignment of rights to dividends agreement dated 26April 2018 which was retroactively effective as at the date of 23 August 2017executed by and between PTSP and Third Harbor Construction to terminate thePTSP Assignment of Rights to Dividends Agreement;

(vi) an assignment of rights to dividends agreement 26 April 2018 which wasretroactively effective as at the date of 23 August 2017 executed by and betweenPTPB, Third Harbor Construction and Benteng Indonesia, where PTPB hasassigned its rights to receive dividends from its 330,000 shares in BentengIndonesia to Third Harbor Construction;

(vii) a termination agreement to option agreement dated 26 April 2018 which wasretroactively effective as at the date of 23 August 2017 executed by and betweenPTSP and Third Harbor Construction to terminate PTSP Option Agreement;

(viii) an option agreement dated 26 April 2018 which was retroactively effective as at thedate of 23 August 2017 executed by and between PTPB and Third HarborConstruction, where PTPB has granted the right to Third Harbor Construction topurchase the 330,000 shares owned by PTPB in Benteng Indonesia;

(ix) a cancellation of power of attorney to sell dated 26 April 2018 which was retroactivelyeffective as at the date of 23 August 2017 between PTSP and Third HarborConstruction to cancel PTSP Power of Attorney to Sell;

(x) a power of attorney to sell dated 26 April 2018 which was retroactively effective asat the date of 23 August 2017 between PTPB and Third Harbor Construction wherePTPB has granted power of attorney to Third Harbor Construction to sell 330,000shares owned by PTPB in Benteng Indonesia;

(xi) a cancellation of power of attorney to vote dated 26 April 2018 which wasretroactively effective as at the date of 23 August 2017 between PTSP and ThirdHarbor Construction to cancel PTSP Power of Attorney to Vote; and


– 159 –


(xii) a power of attorney to vote dated 26 April 2018 which was retroactively effective asat the date of 23 August 2017 between PTPB and Third Harbor Construction wherePTPB has granted a power of attorney to Third Harbor Construction to attendgeneral meeting of shareholders of Benteng Indonesia and to cast vote representing330,000 shares owned by PTPB in Benteng Indonesia.

On 26 April 2018, Third Harbor Construction transferred its 670,000 shares in BentengIndonesia to Engineering Prosper by entering into a deed of share purchase (No. 59) (assupplemented by a supplemental agreement dated 16 May 2018). Subsequent to this sharetransfer, the following agreements were entered into:

(i) the second novation to the PTPB Cooperation Agreement entered into betweenThird Harbor Construction, Engineering Prosper and PTPB on 26 April 2018;

(ii) an assignment of receivables agreement entered into by Third Harbor Constructionand Engineering Prosper on 26 April 2018;

(iii) a sale and purchase of receivables agreement entered into by Third HarborConstruction and Engineering Prosper on 26 April 2018;

(iv) a loan agreement entered into by PTPB and Engineering Prosper on 26 April 2018;

(v) a pledge of shares agreement entered into among PTPB, Engineering Prosper andBenteng Indonesia on 26 April 2018;

(vi) an assignment of rights to dividends agreement entered into among PTPB,Engineering Prosper and Benteng Indonesia on 26 April 2018;

(vii) an option agreement entered into between PTPB and Engineering Prosper on 26April 2018;

(viii) a power of attorney to sell entered into between PTPB and Engineering Prosper on26 April 2018; and

(ix) a power of attorney to vote entered into between PTPB and Engineering Prosper on26 April 2018.

As a result of the Offshore Reorganisation, on 26 April 2018, Benteng Indonesia wasowned as to 67% by Engineering Prosper and 33% by PTPB.

To consolidate control over and derive the economic benefits from the 33% equityinterests in Benteng Indonesia currently held by PTPB to our Group, we have entered into theContractual Arrangements with PTPB. For further details of our Contractual Arrangements forBenteng Indonesia, please also refer to the section headed “Trust and ContractualArrangements – Our Contractual Arrangements for Benteng Indonesia” in this document.From the incorporation of Benteng Indonesia until the completion of our OffshoreReorganisation, Third Harbor Construction had always been the beneficial owner of BentengIndonesia.


– 160 –


Benteng Indonesia is principally engaged in port infrastructure work in Indonesia.

Major disposals of equity interest in companies during the Track Record Period

During the Track Record Period, Third Harbor Construction disposed of equity interest in

the following two companies which carried out port, waterway and marine engineering

business:

Disposal of equity interest in Shanghai Third Harbor Benteng Foundation Construction

Co., Limited* (上海三航奔騰基礎工程有限公司) (subsequently renamed as Shanghai

Hongqi Foundation Construction Co., Limited* (上海竑起基礎工程有限公司))

On 30 September 2017, Third Harbor Construction disposed of its entire 26% equity

interests in Shanghai Third Harbor Benteng Foundation Construction Co., Limited* (上海三航奔騰基礎工程有限公司) (subsequently renamed as Shanghai Hongqi Foundation Construction

Co., Limited* (上海竑起基礎工程有限公司)) to Ms. Fan Hongbo, an Independent Third Party, for

a consideration of RMB6,675,800, which was determined at after arm’s-length negotiation with

reference to the net asset value as at 31 December 2016. The disposal was completed on 24

November 2017. Our Directors confirmed that the disposal was decided and made in order to

streamline our internal group structure to enhance our operational and administrative

efficiency.

Disposal of equity interest in Shanghai Third Harbor Benteng Water Works Engineering

Co., Limited* (上海三航奔騰水工工程有限公司) (subsequently renamed as Shanghai

Chouyu Construction Engineering Co., Limited* (上海疇宇建設工程有限公司))

On 30 September 2017, Third Harbor Construction disposed of its entire 20% equity

interests in Shanghai Third Harbor Benteng Water Works Engineering Co., Limited* (上海三航奔騰水工工程有限公司) (subsequently renamed as Shanghai Chouyu Construction

Engineering Co. Limited* (上海疇宇建設工程有限公司)) to Shanghai Banduo Construction

Engineering Co., Ltd.* (上海般多建設工程有限公司), an Independent Third Party, for a

consideration of RMB1,060,900, which was determined with reference to the net asset value

as at 31 December 2016. The disposal was completed on 1 November 2017. Our Directors

confirmed that the disposal was decided and made in order to streamline our internal group

structure to enhance our operational and administrative efficiency.


– 161 –


In addition, Third Harbor Construction also disposed of equity interests in the following

companies which are not related to port, waterway and marine engineering business and the

percentage of shares disposed of was over 25%:

Name of the disposed company

Percentage

of shares

disposed

of Transferred to

Consideration

(RMB)

Date of

disposal

Zhoushan Benteng Port Services

Engineering Co., Limited*

(舟山奔騰港務工程有限公司)

(Notes 1 & 3)

100% Zhejiang Zhoushan Benteng

Construction Materials Co., Limited*

(浙江舟山奔騰建材製品有限公司) – a

subsidiary of Watts Gallop

(Notes 2 & 3)

Nil 6 July 2017

Shanghai Watts Investment

Management Co., Limited*

(上海華滋投資管理有限公司)

100% Watts Gallop 2,000,000 10 July 2017

Jiangsu DOTA International Trade

Co., Limited (江蘇稻拓國際貿易有限公司)

100% Shanghai Jinjin Trading Co., Limited*

(上海晉金貿易有限公司) – an

Independent Third Party

10,000 18 July 2017

Nantong Qihua Laowu Service

Co., Limited* (南通啟華勞務服務有限公司)

100% Shanghai Jinjin Trading Co., Limited*

(上海晉金貿易有限公司) – an

Independent Third Party

3,000,000 1 August 2017

Zhejiang Zhoushan Benteng

Construction Materials

Co., Limited* (浙江舟山奔騰建材製品有限公司)

(Notes 2 & 3)

90% Watts Gallop 96,755,204.85 27 June 2017

Notes:

1. The principal scope of business of Zhoushan Benteng Port Services Engineering Co., Limited* (舟山奔騰港務工程有限公司) primarily includes, among other things, port engineering construction (港口工程施工), international and domestic waterway transport, international and domestic shipping agency, andship leasing. To the best knowledge of our Directors, although port engineering construction (港口工程施工) is within its scope of business as appeared on its business license, our PRC Legal Advisers haveconfirmed that this company has not obtained any approval or the requisite licenses and certificates tocarry out port engineering construction work. As such, since the establishment of this company till theLatest Practicable Date, this company had never carried out any port engineering construction work.

2. The principal scope of business of Zhejiang Zhoushan Benteng Construction Materials Co., Limited* (浙江舟山奔騰建材製品有限公司) primarily includes, among other things, manufacturing and sales of cementprefabricated components, steel structure prefabricated components, and waterway engineeringconstruction (水上工程施工). To the best knowledge of our Directors, although waterway engineeringconstruction (水上工程施工) is within its scope of business as appeared on its business license, our PRCLegal Advisers have confirmed that this company has not obtained any approval or the requisite licensesand certificates to carry out waterway engineering construction work. As such, since the establishmentof this company till the Latest Practicable Date, this company had never carried out any waterwayengineering construction work.


– 162 –


3. Pursuant to the Deed of Non-competition, each of our Controlling Shareholders has undertaken to usthat it/he/she will not, and will use its/his/her best efforts to procure its/his/her close associates (exceptfor any member of the Group) not to participate in, or engage in or develop any business which is or likelyto be in competition with our business. For further details, please refer to the section headed“Relationship with Controlling Shareholders – Non-competition undertakings” in this document.

Our Directors have confirmed that the above disposals were properly and legally

completed. Our PRC Legal Advisers have also confirmed that all applicable regulatory

approvals in relation to the above disposals were obtained.

ACTING-IN-CONCERT CONFIRMATION

On 22 August 2004, Mr. Wang, Mr. Ye Kangshun (葉康舜), Mr. Wang Xiuchun (王秀春),

Ms. Zhou Meng (周萌) and Mr. Wang Shiqin (王士勤) entered into an acting-in-concert

confirmation, pursuant to which they confirmed that, among other things, (i) they would be

actively cooperating with each other and acting in concert with an aim to achieve consensus

and concerted action on all major decisions and affairs relating to Zhejiang Benteng

Investment Co., Ltd. (浙江奔騰投資有限公司) (which was later known as Watts Gallop); (ii)

when exercising their voting rights at the members’, shareholders’ and directors’ meetings,

they would vote unanimously in accordance with the consensus achieved among the parties,

save and except for circumstances in which connected transaction is involved and any of them

is required to abstain in voting; and (iii) they would act at the direction of Mr. Wang if an

unanimous vote could not be reached (the “Acting-in-concert Arrangement”).

On 25 May 2018, Mr. Wang, Mr. Ye Kangshun (葉康舜), Mr. Wang Xiuchun (王秀春), Ms.

Zhou Meng (周萌), Mr. Wang Shiqin (王士勤) and Mr. Wang Likai (王利凱) entered into another

acting-in-concert confirmation, pursuant to which the same parties confirmed that (i) Mr. Wang

Likai (王利凱) also became a party to the Acting-in-Concert Arrangement since he became

interested in Watts Gallop on 18 October 2017 (the “New Acting-in-concert Arrangement”);

and (ii) the New Acting-in-concert Arrangement would continue to apply to the Group following

the completion of the Reorganisation.

REORGANISATION

In preparation for the [REDACTED], our Group underwent the Reorganisation. The steps

taken pursuant to the Reorganisation can be broadly categorised into two parts, which are the

Onshore Reorganisation and the Offshore Reorganisation.

A. Onshore Reorganisation

Transfer of business and assets from Third Harbor Construction to Third Harbor

Maritime

Immediately prior to the implementation of this step, Third Harbor Construction carried

out our port, waterway and marine engineering business in the PRC.


– 163 –


On 30 November 2017, Third Harbor Construction (as transferor) and Third Harbor

Maritime (as transferee) entered into the Business and Asset Transfer Agreements, pursuant

to which the Transferred Business and Assets were transferred from Third Harbor

Construction to Third Harbor Maritime at a consideration of RMB6,984,314.29, which was

determined with reference to the carrying amount of the Transferred Business and Assets as

at 30 November 2017. The consideration was settled and paid on 30 November 2017.

Upon completion of the Business and Asset Transfer Agreements, Third Harbor

Construction ceased its operation of port, waterway and marine engineering in the PRC, and

Third Harbor Maritime became our major operating subsidiary for carrying out port, waterway

and marine engineering in the PRC. Furthermore, Third Harbor Construction has transferred

all of its port and waterway engineering projects in progress and projects on hand to Third

Harbor Maritime and will no longer possess any contractor qualification certificate of port and

waterway which will enable it to undertake any port, waterway and marine engineering

business in the future. As such, Third Harbor Construction will not compete with our business.

For further details of our Transferred Business and Assets as part of our Onshore

Reorganisation and the business delineation between our Group and Watts Gallop Group,

please refer to the sections headed “History, Reorganisation and Corporate Structure –

Corporate and business development history – Establishment of Third Harbor Maritime and

transfer of the port, waterway and marine engineering business and assets from Third Harbor

Construction to Third Harbor Maritime” and “Relationship with Controlling Shareholders –

Business delineation” in this document. Pursuant to the Deed of Non-competition, each of our

Controlling Shareholders has undertaken to us that it/he/she will not, and will use its/his/her

best efforts to procure its/his/her close associates (i.e. including Third Harbor Construction)

not to participate in, or engage in or develop any business which is or likely to be in competition

with our business. For further details, please refer to the section headed “Relationship with

Controlling Shareholders – Non-competition undertakings” in this document.

On 6 July 2018, Third Harbor Construction and Third Harbor Maritime entered into the

Novation Agreement, pursuant to which, the Third Harbor Construction Contract Assets, the

Third Harbor Construction Trade Receivables and Payables and related rights and obligations

were novated and transferred from Third Harbor Construction to Third Harbor Maritime at a

consideration of approximately RMB155 million, which were determined with reference to the

carrying amount of the Third Harbor Construction Contract Assets, and the Third Harbor

Construction Trade Receivables and Payables as at 30 November 2017, respectively. Taking

into account the receivables collected and payables settled by Third Harbor Construction from

1 December 2017 to 6 July 2018, the final settlement amount for the Novation under the

Novation Agreement is approximately RMB39.3 million, which will be paid by us prior to

[REDACTED].

Our PRC Legal Advisers have confirmed that the aforesaid transfer complied with the

relevant PRC laws and regulations in all material aspect and all necessary approvals had been

obtained.


– 164 –


Establishment of Shanghai Shanyu

Shanghai Shanyu was established under the laws of the PRC as a limited liabilitycompany on 30 November 2017, with a registered capital of RMB120,000,000 atestablishment. Upon its establishment, Shanghai Shanyu was wholly owned by Third HarborConstruction. Shanghai Shanyu is principally engaged in the port, waterway and marineengineering business and services in the PRC and has not commenced business operationyet.

Capital injection by the [REDACTED] Investor into Shanghai Shanyu

On 22 December 2017, Third Harbor Construction, Worldlink and Shanghai Shanyuentered into the Capital Injection Agreement, pursuant to which Worldlink agreed to acquire1.9928% equity interests in Shanghai Shanyu by way of capital injection of RMB2,440,000.The consideration was determined with reference to the registered capital in ShanghaiShanyu.

Upon completion of the Capital Injection Agreement, the registered capital of ShanghaiShanyu increased from RMB120,000,000 to RMB122,440,000 and Shanghai Shanyu wasowned as to 98.0072% and 1.9928% by Third Harbor Construction and Worldlink,respectively.

For further details of our [REDACTED] Investor, please refer to the paragraph headed“The [REDACTED] Investor – Background of the [REDACTED] Investor” in this section.

Establishment of Shanghai Yubo

Shanghai Yubo was established under the laws of the PRC as a limited liability companyon 1 December 2017, with a registered capital of RMB120,000,000. Upon its establishment,Shanghai Yubo was wholly owned by Third Harbor Construction. Shanghai Yubo is principallyengaged in the port, waterway and marine engineering business and services in the PRC andhas not commenced business operation yet.

Establishment of Shanghai Xingning

Shanghai Xingning was established under the laws of the PRC as a limited liabilitycompany on 14 December 2017, with a registered capital of RMB120,000,000. Upon itsestablishment, Shanghai Xingning was wholly owned by Third Harbor Construction. ShanghaiXingning is principally engaged in the port, waterway and marine engineering business andservices in the PRC and has not commenced business operation yet.

Acquisition of Third Harbor Maritime by Shanghai Xingning

On 23 January 2018, Shanghai Xingning acquired 100% equity interests in Third HarborMaritime from Third Harbor Construction at a consideration of RMB120,000,000, which wasdetermined with reference to the registered capital of Third Harbor Maritime.


– 165 –


Upon completion of this acquisition, Third Harbor Maritime became a direct wholly-owned

subsidiary of Shanghai Xingning.

Acquisition of Shanghai Xingning by Shanghai Yubo

On 24 January 2018, Shanghai Yubo acquired 100% equity interests in Shanghai

Xingning from Third Harbor Construction at nil consideration, which was determined with

reference to the registered capital paid in Shanghai Xingning by then.

Upon completion of this acquisition, Shanghai Xingning became a direct wholly-owned

subsidiary of Shanghai Yubo.

Acquisition of Shanghai Yubo by Shanghai Shanyu

On 30 January 2018, Shanghai Shanyu acquired 100% equity interests in Shanghai Yubo

from Third Harbor Construction at nil consideration, which was determined with reference to

the registered capital paid in Shanghai Yubo by then.

Upon completion of this acquisition, Shanghai Yubo became a direct wholly-owned

subsidiary of Shanghai Shanyu.

The following chart sets out the shareholding structure immediately upon completion of

the abovementioned Onshore Reorganisation:

Shanghai Shanyu (PRC)

Shanghai Yubo (PRC)

Shanghai Xingning (PRC)

Third Harbor Maritime (PRC)

100%

98.0072%

100%

1.9928%

100%

100%

Offshore

Onshore

Worldlink (HK)

Third Harbor Construction (PRC)

Mr. Y

e K

angshun (葉康舜

)

Mr. W

an

g X

iuch

un

(王秀春

)

Mr. L

i Weife

i (李為飛

)

Mr. L

i Hongw

ei (李紅衛

)

Mr. H

ua

ng

Gu

an

min

g (黃關明

)

Mr. T

ang J

inxin

(湯金鑫

)

Mr. P

an X

infa

(潘新法

)

Ms. Z

hu W

eie

r (朱衛兒

)

Mr. W

an

g L

ika

i (王利凱

)

Ms. Z

hou M

eng (周萌

)

Mr. S

he

n J

ian

li (沈建力

)

Mr. W

ang S

hiq

in (王士勤

)

Mr. J

in Y

uhuan (金玉煥

)

Mr. Y

an

Xin

sh

en

g (閆新生

)

Mr. L

u Y

ang (魯楊

)

Ms. W

an Y

un (萬雲

)

Ms. Z

hu Q

iulia

n (朱秋蓮

)

Mr. X

u M

ingsong (徐明松

)

Mr. W

ang

Mr. C

hen Y

an (陳岩

)

56.00% 8.66% 6.00% 4.00% 4.00% 4.00% 2.70% 2.06% 2.00% 1.00% 1.50% 1.36% 1.36% 1.36% 1.00% 1.00% 0.50% 0.50% 0.50% 0.50%

Watts Gallop (PRC)


– 166 –


B. Offshore Reorganisation

Incorporation of HuaZi Holding

HuaZi Holding was incorporated in the BVI with limited liability on 8 December 2017.HuaZi Holding was authorised to issue a maximum of 50,000 shares with par value of US$1.00each of a single class. Upon incorporation, Mr. Wang subscribed for one ordinary share inHuaZi Holding at a subscription price of US$1.00.

Upon completion of such subscription, HuaZi Holding was wholly owned by Mr. Wang. On[REDACTED], each of HuaZi Holding and Mr. Wang will become a Controlling Shareholder.

Incorporation of Ye Wang Zhou Holding

Ye Wang Zhou Holding was incorporated in the BVI with limited liability on 8 December2017. Ye Wang Zhou Holding was authorised to issue a maximum of 50,000 shares with parvalue of US1.00 each of a single class. Upon incorporation, Mr. Ye Kangshun (葉康舜), Mr.Wang Xiuchun (王秀春), Ms. Zhou Meng (周萌), Mr. Wang Shiqin (王士勤) and Mr. Wang Likai(王利凱) (collectively, the “Five Individual Shareholders”) subscribed for 4,676, 3,240, 810,734 and 540 ordinary shares, respectively, in Ye Wang Zhou Holding at a subscription price ofUS$1.00 per share.

Upon completion of such subscriptions, Ye Wang Zhou Holding was owned as toapproximately 46.76%, 32.40%, 8.10%, 7.34% and 5.40% by Mr. Ye Kangshun (葉康舜), Mr.Wang Xiuchun (王秀春), Ms. Zhou Meng (周萌), Mr. Wang Shiqin (王士勤) and Mr. Wang Likai(王利凱) respectively. By virtue of the Acting-in-concert Confirmation, each of Ye Wang ZhouHolding and the Five Individual Shareholders is a Controlling Shareholder.

Incorporation of HZ&BT Development Holding

HZ&BT Development Holding was incorporated in the BVI with limited liability on 8December 2017. HZ&BT Development Holding was authorised to issue a maximum of 50,000shares with par value of US1.00 each of a single class. Upon incorporation, Mr. Li Hongwei (李紅衛), Mr. Li Weifei (李為飛), Mr. Huang Guanming (黃關明), Mr. Tang Jinxin (湯金鑫), Mr. PanXinfa (潘新法), Ms. Zhu Weier (朱衛兒), Mr. Shen Jianli (沈建力), Mr. Jin Yuhuan (金玉煥), Mr.Yan Xinsheng (閆新生), Mr. Lu Yang (魯楊), Ms. Wan Yun (萬雲), Ms. Zhu Qiulian (朱秋蓮), Mr.Xu Mingsong (徐明松) and Mr. Chen Yan (陳岩) (collectively, the “14 IndividualShareholders”) subscribed for 1,571, 1,570, 1,570, 1,060, 808, 785, 534, 534, 392, 392, 196,196, 196 and 196 ordinary shares, respectively, in HZ&BT Development Holding at asubscription price of US$1.00 per share.

Upon completion of these subscriptions, HZ&BT Development Holding was owned as toapproximately 15.71%, 15.70%, 15.70%, 10.60%, 8.08%, 7.85%, 5.34%, 5.34%, 3.92%,3.92%, 1.96%, 1.96%, 1.96% and 1.96% by Mr. Li Hongwei (李紅衛), Mr. Li Weifei (李為飛), Mr.Huang Guanming (黃關明), Mr. Tang Jinxin (湯金鑫), Mr. Pan Xinfa (潘新法), Ms. Zhu Weier (朱衛兒), Mr. Shen Jianli (沈建力), Mr. Jin Yuhuan (金玉煥), Mr. Yan Xinsheng (閆新生), Mr. LuYang (魯楊), Ms. Wan Yun (萬雲), Ms. Zhu Qiulian (朱秋蓮), Mr. Xu Mingsong (徐明松) and Mr.Chen Yan (陳岩), respectively.


– 167 –


Incorporation of our Company

Our Company was incorporated in the Cayman Islands as an exempted company with

limited liability on 20 December 2017 to act as the holding company of our Group. The initial

authorised share capital of the Company was HK$380,000 divided into 38,000,000 Shares

with a par value of HK$0.01 each. Upon incorporation, one Share was allotted and issued,

credited as fully-paid, to Harneys Fiduciary (Cayman) Limited, our Company’s initial

subscriber and an Independent Third Party. Such Share was subsequently transferred to

HuaZi Holding on the same date.

On the same date, 509,599, 168,532 and 231,868 Shares were allotted and issued to

HuaZi Holding, Ye Wang Zhou Holding and HZ&BT Development Holding, respectively,

credited as fully paid.

On 10 April 2018, HuaZi Holding, Ye Wang Zhou Holding and HZ&BT Development

Holding acquired further 509,600, 168,532 and 231,868 Shares, respectively, by way of capital

injection at a total consideration of US$9,957,914.71 (equivalent to approximately

RMB62,440,000) on a pro-rata basis. On 10 April 2018, the total consideration was fully paid

and settled.

Upon completion of this capital injection, our Company was owned as to 56%, 18.52%

and 25.48% by HuaZi Holding, Ye Wang Zhou Holding and HZ&BT Development Holding,

respectively.

Incorporation of HuaZi Rosely

HuaZi Rosely was incorporated in the BVI with limited liability on 5 January 2018. HuaZi

Rosely was authorised to issue a maximum of 50,000 shares with par value of US$1.00 each

of a single class. On 15 January 2018, our Company subscribed for one ordinary share in

HuaZi Rosely at a subscription price of US$1.00 per share.

Upon completion of this subscription, HuaZi Rosely was wholly owned by our Company.

Incorporation of Maritime Vansun

Maritime Vansun was incorporated in the BVI with limited liability on 5 January 2018.

Maritime Vansun was authorised to issue a maximum of 50,000 shares with par value of

US$1.00 each of a single class. On 15 January 2018, our Company subscribed for one

ordinary share in Maritime Vansun at a subscription price of US$1.00 per share.

Upon completion of this subscription, Maritime Vansun was wholly owned by our

Company.


– 168 –


Incorporation of Engineering Prosper

Engineering Prosper was incorporated in the BVI with limited liability on 5 January 2018.

Engineering Prosper was authorised to issue a maximum of 50,000 shares with par value of

US$1.00 each of a single class. On 15 January 2018, our Company subscribed for one

ordinary share in Engineering Prosper at a subscription price of US$1.00 per share.

Upon completion of this subscription, Engineering Prosper was wholly owned by our

Company.

Incorporation of Royal Karry

Royal Karry was incorporated in Hong Kong with limited liability by shares on 8 February

2018 with a share capital of HK$1.00. Upon incorporation, one ordinary share was allotted and

issued to HuaZi Rosely, credited as fully paid.

Upon completion of this issue and allotment, Royal Karry was wholly owned by HuaZi

Rosely.

[REDACTED] Investment by Worldlink

On 11 April 2018, our Company, HuaZi Holding, Ye Wang Zhou Holding, HZ&BT

Development Holding, Mr. Wang, the Five Individual Shareholders, the 14 Individual

Shareholders and Worldlink entered into the Subscription Agreement, pursuant to which

Worldlink agreed to subscribe for 180,000 new Shares, representing [REDACTED]% of the

then total issued share capital of our Company as enlarged by the subscription, at a total

subscription price of US$9,584,744.54 (equivalent to approximately RMB60,000,000). Upon

completion of the Subscription Agreement, our Company was owned as to approximately

[REDACTED]%, [REDACTED]%, [REDACTED]% and [REDACTED]% by HuaZi Holding, Ye

Wang Zhou Holding, HZ&BT Development Holding and Worldlink, respectively.

For further details of our [REDACTED] Investment, please refer to the section headed

“History, Reorganisation and Corporate Structure – The [REDACTED] Investment” in this

document.

Acquisition of Benteng Brunei by Maritime Vansun

Immediately prior to the implementation of this reorganisation step, Benteng Brunei was

owned as to 99% by Third Harbor Construction, through Mr. Tang Liang (唐亮) as nominee,

and 1% by Third Harbor Construction, through Mr. Tang Liang (唐亮) via PSB, an Independent

Third Party, as nominee.


– 169 –


On 19 April 2018, Mr. Tang Liang (唐亮) transferred 24,750 shares, representing 99% ofthe total number of issued shares of Benteng Brunei to Maritime Vansun, and Third HarborConstruction transferred its entire beneficial interest in Benteng Brunei to Maritime Vansun ata consideration of US$5,269,431.38 (equivalent to RMB34,431,519), with reference to the netasset value of Benteng Brunei. To satisfy the consideration for the above acquisition and at theinstruction of Mr. Wang, the Five Individual Shareholders, the 14 Individual Shareholders andThird Harbor Construction, our Company issued and allotted 286,611, 94,768, 130,426 and50,618 Shares, credited as fully paid, to HuaZi Holding, Ye Wang Zhou Holding, HZ&BTDevelopment Holding and Worldlink, respectively.

Upon completion of this acquisition, (i) Benteng Brunei was owned as to 99% by MaritimeVansun and 1% by Maritime Vansun (via PSB as nominee); and (ii) our Company was ownedas to approximately 50.96%, 16.85%, 23.19% and 9.00% by HuaZi Holding, Ye Wang ZhouHolding, HZ&BT Development Holding and Worldlink, respectively.

Acquisition of Benteng Indonesia by Engineering Prosper

Immediately prior to the implementation of this reorganisation step, Benteng Indonesiawas owned as to 67% by Third Harbor Construction and 33% by PTPB, an Independent ThirdParty.

On 26 April 2018, Third Harbor Construction transferred 670,000 shares, representing67% of the total number of issued shares of Benteng Indonesia to Engineering Prosper at aconsideration of US$886,536.3 (equivalent to RMB5,792,805.47) with reference to the netasset value of Benteng Indonesia. To satisfy the consideration for the above acquisition and atthe instruction of Mr. Wang, the Five Individual Shareholders, the 14 Individual Shareholdersand Third Harbor Construction, our Company issued and allotted 48,113, 15,909, 21,894 and8,497 Shares, credited as fully paid, to HuaZi Holding, Ye Wang Zhou Holding, HZ&BTDevelopment Holding and Worldlink, respectively.

Upon completion of this acquisition, (i) Benteng Indonesia was owned as to 67% byEngineering Prosper and 33% by PTPB; and (ii) our Company was owned as to approximately50.96%, 16.85%, 23.19% and 9% by HuaZi Holding, Ye Wang Zhou Holding, HZ&BTDevelopment Holding and Worldlink, respectively.

Acquisition of Shanghai Shanyu by Royal Karry

For details of the reorganisation steps undertaken in respect of the OnshoreReorganisation, please refer to the section headed “History, Reorganisation and CorporateStructure – Reorganisation – A. Onshore Reorganisation” in this document.

On 1 May 2018, Royal Karry entered into the Share Transfer Agreement with Third HarborConstruction and Worldlink, pursuant to which Royal Karry agreed to acquire 98.0072% and1.9928% of the equity interests in Shanghai Shanyu from Third Harbor Construction andWorldlink, respectively, at a consideration of US$18,901,805.12 (equivalent toRMB120,000,000) and US$384,336.71 (equivalent to RMB2,440,000), respectively, based onthe paid-up registered capital at Shanghai Shanyu as at 31 March 2018. On 15 May 2018, thetotal consideration was fully paid and settled.


– 170 –


Upon completion of this acquisition, Shanghai Shanyu was wholly-owned by Royal Karry.Shanghai Shanyu was converted from a sino-foreign joint venture to a wholly-foreign ownedenterprise.

As confirmed by our PRC Legal Advisers, Brunei Legal Advisers and Indonesian LegalAdvisers, each of the share transfers mentioned above for the purpose of the Reorganisationwas properly and legally completed and settled.

SHAREHOLDING STRUCTURE UPON COMPLETION OF THE REORGANISATION

The following chart sets out our shareholding structure immediately after theReorganisation and the [REDACTED] Investment but before completion of the [REDACTED]and the [REDACTED]:

Mr. Y

e K

an

gsh

un

(葉康舜

)

Mr. W

an

g X

iuch

un

(王秀春

)

Mr. L

i We

ifei (李為飛

)

Mr. L

i Ho

ng

we

i (李紅衛

)

Mr. H

ua

ng

Gu

an

min

g (黃關明

)

Mr. T

an

g J

inxin

(湯金鑫

)

Mr. P

an

Xin

fa (潘新法

)

Ms. Z

hu W

eie

r (朱衛兒

)

Mr. W

an

g L

ika

i (王利凱

)

Ms. Z

ho

u M

en

g (周萌

)

Mr. S

he

n J

ian

li (沈建力

)

Mr. W

an

g S

hiq

in (王士勤

)

Mr. J

in Y

uh

ua

n (金玉煥

)

Mr. Y

an

Xin

sh

en

g (閆新生

)

Mr. L

u Y

an

g (魯楊

)

Ms. W

an

Yu

n (萬雲

)

Ms. Z

hu

Qiu

lian

(朱秋蓮

)

Mr. X

u M

ing

so

ng

(徐明松

)

Mr. W

an

g S

hiz

ho

ng

(王士忠

)

Mr. C

he

n Y

an

(陳岩

)

100%

8.10% 5.40%7.34% 15.71% 15.70% 15.70% 10.60% 8.08% 7.85% 5.34% 5.34% 3.92% 3.92% 1.96% 1.96% 1.96% 1.96%32.40%46.76%

HuaZi Holding (BVI) Ye Wang Zhou Holding (BVI) Worldlink (HK)

Maritime Vansun (BVI) HuaZi Rosely (BVI)

Royal Karry (HK)

Engineering Prosper (BVI) PTPB (Indonesia)


Shanghai Yubo (PRC)



Benteng Indonesia (Indonesia)Benteng Brunei (Brunei)

The Company

(Cayman Islands)

HZ&BT Development Holding (BVI)

[REDACTED]%[REDACTED]%[REDACTED]%[REDACTED]%

100%

100% (Note 1)

100%

100%

100%

100%

100%

100%

67% 33% (Note 2)

100%

Offshore

Onshore

Note 1: Benteng Brunei is owned as to 99% by Maritime Vansun and 1% by Maritime Vansun via PSB as nominee.Based on the trust/nominee arrangements, Benteng Brunei is 100% beneficially owned by MaritimeVansun.

Note 2: The 33% interests in Benteng Indonesia was held by PTPB in order to comply with the requirement underIndonesia law of having (i) an Indonesian citizen(s) or (ii) legal entity fully owned by an Indonesian citizen(s)as shareholder. To consolidate control over and derive the economic benefits from such 33% interests inBenteng Indonesia, Engineering Prosper had entered into Contractual Arrangements with PTPB. Forfurther details, please refer to the section headed “Trust and Contractual Arrangements – Our ContractualArrangements for Benteng Indonesia” in this document.


– 171 –


THE [REDACTED] INVESTMENT

On 11 April 2018, our Company, HuaZi Holding, Ye Wang Zhou Holding, HZ&BTDevelopment Holding, Mr. Wang, the Five Individual Shareholders, the 14 IndividualShareholders and Worldlink entered into the Subscription Agreement, pursuant to whichWorldlink agreed to subscribe for 180,000 new Shares, representing [REDACTED]% of thethen total issued share capital of our Company as enlarged by the subscription, at a totalsubscription price of US$9,584,744.54 (equivalent to approximately RMB60,000,000).

The subscription price was arrived at after arm’s-length negotiations with agreedvaluation, based on the net profit of our Group for the financial year ended 31 December 2017.The consideration was fully paid, and the [REDACTED] Investment was completed on 11 April2018.

As part of the Reorganisation, a total amount of US$388,473.72 (equivalent toapproximately RMB2,440,000) was paid by Worldlink to Shanghai Shanyu by 29 March 2018as capital injection into Shanghai Shanyu so as to facilitate the Onshore Reorganisation inpreparation for the [REDACTED]. We and Worldlink acknowledged that in determining thesubscription price, we and Worldlink have considered the value of our Group (including thevalue of our subsidiaries that would become part of our Group as a result of theReorganisation) as a whole. The parties to the Subscription Agreement also acknowledgedthat certain restructuring steps and internal transfers would be conducted and we would issuefurther Shares to Mr. Wang, the Five Individual Shareholders and the 14 IndividualShareholders, or their respective nominees as part of the Reorganisation. The parties furtheracknowledged and agreed that Worldlink’s shareholding percentage in the issued sharecapital of our Company would not be diluted as a result of such restructuring steps and internaltransfers and further Shares might be issued to Worldlink to ensure its shareholding in ourCompany would remain at [REDACTED]% immediately after the completion of theReorganisation.

Upon completion of the [REDACTED] Investment, our Company was owned as toapproximately [REDACTED]%, [REDACTED]%, [REDACTED]% and [REDACTED]% HuaZiHolding, Ye Wang Zhou Holding, HZ&BT Development Holding and Worldlink, respectively.

Background of the [REDACTED] Investor

Worldlink is an investment company, which was incorporated with limited liability in HongKong on 23 January 2013 and is wholly owned by Ms. Olive Chen, who has subsequentlybecome our executive Director after the completion of our [REDACTED] Investment. We werefirst introduced to Ms. Olive Chen in 2017 by a mutual acquaintance. Ms. Olive Chen has a fewyears of extensive experience in project team management and investment, and has showngenuine interest in investing into our Group after our several meetings and discussions. To thebest knowledge, information and belief of our Directors, Ms. Olive Chen and Worldlink wereboth Independent Third Parties to our Group and Watts Gallop Group prior to the completionof our [REDACTED] Investment. Worldlink decided to invest into our Group after itsassessment of our long history, stable management and future prospects of the port, waterwayand marine engineering industries in both of the PRC and Southeast Asia.


– 172 –


Summary of the principal terms of the [REDACTED] Investment are set out below:

Full name of the [REDACTED] Worldlink Resources Limited (世聯資源有限公司)

Completion date of the

[REDACTED] Investment

11 April 2018

Amount of consideration paid US$9,584,744.54 (equivalent to RMB60,000,000)

Cost per Share paid by the

[REDACTED]

HK$[REDACTED]

Premium/Discount to the

[REDACTED] range

Premium of [REDACTED]% and Discount of

[REDACTED]% (based on the [REDACTED] at

HK$[REDACTED] and HK$[REDACTED] per Share

respectively

Shareholding in our Company

upon the completion of the

Subscription Agreement and

the Reorganisation

approximately [REDACTED]%

Shareholding in our Company

upon the [REDACTED]

(assuming the [REDACTED]

is not exercised and without

taking into account any

Shares which may be issued

pursuant to the exercise of

any options which may be

granted under the Share

Option Scheme)

approximately [REDACTED]%

[REDACTED]


– 173 –


Strategic benefits Worldlink is primarily engaged in equity investment in

renewable energy and cultural industries. Our

Directors are of the view that we can benefit from

Worldlink’s commitment to our Group, and its

investment demonstrates its confidence in our

Company and serves as an endorsement of our

performance, strengths and future prospects

Lock-up The Shares held by Worldlink are subject to a lock-up

period of three years from the [REDACTED] unless

having obtained the prior written consent from our

Company. The three-year lock-up period is a

commercial term which had factored in Ms. Olive

Chen’s role as our executive Director whose main

responsibilities include general business development

and client relations.

Public float The Shares held by Worldlink will not be counted

towards the public float of our Company as Ms. Olive

Chen subsequently became an executive Director

after completion of the Subscription Agreement

Special rights No special right was granted to Worldlink in relation to

the [REDACTED] Investment

Compliance with Interim Guidance

The Sole Sponsor has confirmed that the terms of the [REDACTED] Investment are under

normal commercial terms and are in compliance with the Guidance Letter HKEx-GL29-12

issued in January 2012 and as updated in March 2017, the Guidance Letter HKEx-GL-43-12

issued in October 2012 and as updated in July 2013 and March 2017 by the Stock Exchange,

and the Guidance Letter HKEx-GL44-12 issued in October 2012 and as updated in March 2017

by the Stock Exchange.


– 174 –


SHAREHOLDING STRUCTURE UPON COMPLETION OF THE [REDACTED]

The following chart sets forth our corporate and shareholding structure immediately

following completion of the [REDACTED] and the [REDACTED] (assuming the [REDACTED]

is not exercised and without taking into account any Shares which may be issued pursuant to

the exercise of any options which may be granted under the Share Option Scheme):

Mr. W

an

g S

hiz

ho

ng

(王士忠

)

100%

8.10% 5.40%7.34% 15.71% 15.70% 15.70% 10.60% 8.08% 7.85% 5.34% 5.34% 3.92% 3.92% 1.96% 1.96% 1.96% 1.96%32.40%46.76%

HuaZi Holding (BVI) Ye Wang Zhou Holding (BVI) Worldlink (HK) Public

Shareholders

Maritime Vansun (BVI) HuaZi Rosely (BVI)

Royal Karry (HK)


Shanghai Yubo (PRC)



Benteng Brunei (Brunei)

The Company

(Cayman Islands)

HZ&BT Development Holding (BVI)

[REDACTED]% [REDACTED]%[REDACTED]%[REDACTED]%[REDACTED]%

100%

100% (Note 1)

100%

100%

100%

100%

100%

Offshore

Onshore

Mr. Y

e K

an

gsh

un

(葉康舜

)

Mr. W

an

g X

iuch

un

(王秀春

)

Mr. L

i We

ifei (李為飛

)

Mr. L

i Ho

ng

we

i (李紅衛

)

Mr. H

ua

ng

Gu

an

min

g (黃關明

)

Mr. T

an

g J

inxin

(湯金鑫

)

Mr. P

an

Xin

fa (潘新法

)

Ms. Z

hu

We

ier (朱衛兒

)

Mr. W

an

g L

ika

i (王利凱

)

Ms. Z

ho

u M

en

g (周萌

)

Mr. S

he

n J

ian

li (沈建力

)

Mr. W

an

g S

hiq

in (王士勤

)

Mr. J

in Y

uh

ua

n (金玉煥

)

Mr. Y

an

Xin

sh

en

g (閆新生

)

Mr. L

u Y

an

g (魯楊

)

Ms. W

an

Yu

n (萬雲

)

Ms. Z

hu

Qiu

lian

(朱秋蓮

)

Mr. X

u M

ing

so

ng

(徐明松

)

Mr. C

he

n Y

an

(陳岩

)

Engineering Prosper (BVI) PTPB (Indonesia)

Benteng Indonesia (Indonesia)

67% 33% (Note 2)

100%

Note 1: Benteng Brunei is owned as to 99% by Maritime Vansun and 1% by Maritime Vansun via PSB as nominee.Based on the trust/nominee arrangements, Benteng Brunei is 100% beneficially owned by MaritimeVansun.

Note 2: The 33% interest in Benteng Indonesia was held by PTPB in order to comply with the requirement underIndonesia law of having (i) an Indonesian citizen(s) or (ii) legal entity fully owned by an Indonesian citizen(s)as shareholder. To consolidate control over and derive the economic benefits from such 33% interest inBenteng Indonesia, Engineering Prosper had entered into Contractual Arrangements with PTPB. Forfurther details, please refer to the section headed “Trust and Contractual Arrangements – Our ContractualArrangements for Benteng Indonesia” in this document.


– 175 –


THE RULES ON THE MERGERS AND ACQUISITIONS OF DOMESTIC ENTERPRISES BYFOREIGN INVESTORS

On 8 August 2006, six PRC ministries and commissions, including MOFCOM and CSRC,promulgated the M&A Rules, a regulation with respect to the mergers and acquisitions ofdomestic enterprises by foreign investors that became effective on 8 September 2006 andrevised on 22 June 2009. The M&A Rules, among other things, provides that a foreign investorseeking acquisition of the equity interest in a non-foreign-invested PRC enterprise, orpurchasing and operating the assets of that enterprise by establishing a foreign-investedenterprise in the PRC, shall obtain the approval of MOFCOM or its counterparts at provinciallevel.

As advised by our PRC Legal Advisers, upon the Reorganisation, Shanghai Shanyu wasa foreign-invested enterprise, the Reorganisation is an acquisition of equity in a foreigninvested enterprise, and as such, the M&A Rules is not applicable and approval fromMOFCOM, CSRC or other PRC government authorities for the [REDACTED] is not required.

SAFE REGISTRATION

Pursuant to the requirements of Regulation of the People’s Republic of China on ForeignExchange Administration (《中華人民共和國外匯管理條例》), the SAFE made provisions forthe issues in relation to the foreign exchange management of offshore investment andfinancing and round trip investment by domestic residents through special purpose vehicles byHuifa [2014] No. 37(匯發[2014] 37號) on 4 July 2014, stipulating that domestic residents mustregister with the SAFE prior to their contribution of legal domestic and overseas assets orequity interests to a special purpose vehicle. Meanwhile, No.37 also provides that foreignexchange alteration of the registration formality for offshore investment shall be completedwith the SAFE in a timely manner in case of any change in basic information of the registeredoverseas special purpose vehicle such as its domestic resident individual shareholder, nameand terms of operation, or upon any material change such as increase or reduction of capital,share transfer or swap and merger or division of the domestic resident individual shareholder.Subsequent procedures including repatriation of profits and bonus may proceed only uponcompletion of the registration of a domestic resident for foreign exchange alteration of offshoreinvestment.

According to the Notice of the State Administration of Foreign Exchange on Further Simplifyingand Improving Policies for the Foreign Exchange Administration of Direct Investment (《國家外匯管理局關於進一步簡化和改進直接投資外匯管理政策的通知》) (promulgated on 13 February 2015and effective on 1 June 2015), the SAFE decided to further simplify and improve policies for theforeign exchange administration of direct investment on a nationwide basis by cancelling twoadministrative approval items: approval of foreign exchange registration under domestic directinvestment and approval of foreign exchange registration under overseas direct investment and,instead, banks shall directly examine and handle foreign exchange registration under domesticdirect investment and foreign exchange registration under overseas direct investment, and theSAFE and its branches shall indirectly regulate the foreign exchange registration of direct investmentthrough banks, simplifying the procedures for some foreign exchange transactions under directinvestment.


– 176 –


As advised by our PRC Legal Advisers, our individual Shareholders who are PRC

citizens, namely Mr. Wang, Mr. Ye Kangshun (葉康舜), Mr. Wang Xiuchun (王秀春), Ms. Zhou

Meng (周萌), Mr. Wang Shiqin (王士勤), Mr. Wang Likai (王利凱), Mr. Li Hongwei (李紅衛), Mr.

Li Weifei (李為飛), Mr. Huang Guanming (黃關明), Mr. Tang Jinxin (湯金鑫), Mr. Pan Xinfa (潘新法), Ms. Zhu Weier (朱衛兒), Mr. Shen Jianli (沈建力), Mr. Jin Yuhuan (金玉煥), Mr. Yan

Xinsheng (閆新生), Mr. Lu Yang (魯楊), Ms. Wan Yun (萬雲), Ms. Zhu Qiulian (朱秋蓮), Mr. Xu

Mingsong (徐明松) and Mr. Chen Yan (陳岩), have all completed the foreign exchange

registration of domestic resident for their individual offshore investment in January 2018.


– 177 –


OVERVIEW

We are the largest non-state-owned port, waterway and marine engineering company in

the PRC in terms of revenue according to Frost & Sullivan. We are also currently one of the

only twelve non-state-owned enterprises in the PRC that possesses the first-grade general

contractor qualification certificate granted by MOHURD for conducting port, waterway and

marine engineering business in the PRC. According to Frost & Sullivan, Chinese state-owned

enterprises account for over 90% of the market share of the PRC port, waterway and marine

engineering industry. We ranked ninth in the whole port, waterway and marine engineering

industry in the PRC and we were also the second largest port, waterway and marine

engineering company among all Chinese state-owned and non-state-owned companies in

Southeast Asia, both in terms of revenue in 2017.

We have been operating in core and specialised areas of the PRC port, waterway and

marine engineering industry, primarily focusing on port infrastructure and waterway

engineering. Our port infrastructure work primarily includes wharf construction. We also

conduct a small portion of other port infrastructure work, such as breakwater and revetment

construction and land yard construction. Our waterway engineering work primarily includes

waterway dredging and improvement and land reclamation. Throughout the years, we have

gradually expanded our business to certain regions including Yangtze River Delta, Pearl River

Delta, central and northern China. In 2016, we also became one of the pioneers in the PRC to

set foot in Southeast Asia by expanding our business in Brunei and Indonesia following

China’s Belt and Road Initiative. During the Track Record Period and up to the Latest

Practicable Date, we had completed 108 port infrastructure projects and 18 waterway

engineering projects in the PRC. As at the Latest Practicable Date, we had a total of 37

projects in progress in the PRC and Southeast Asia, which represent contracts awarded to us

but have not yet been completed, with a total contract value of approximately RMB3,221.4

million, and 11 projects on hand, which represent contracts awarded to us but have not yet

been started, with a total contract value of approximately RMB859.8 million.

We have our own fleet of vessels and construction equipment that are specifically

designed to carry out our port and waterway engineering work and services. As at the Latest

Practicable Date, we owned two piling barges and a total of other 97 construction equipment.


30 April 2018, we recorded a total revenue of approximately RMB1,124.7 million, RMB1,263.8

million, RMB1,412.0 million and RMB268.5 million, respectively. Our net profit for the three

years ended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2018 was

approximately RMB63.8 million, RMB75 million, RMB87.3 million and RMB24.6 million,

respectively.

BUSINESS

– 178 –


COMPETITIVE STRENGTHS

We believe that the following competitive strengths have enabled us to compete

effectively in the port, waterway and marine engineering industry in the PRC and Southeast

Asia:


the PRC and second largest port, waterway and marine engineering company among all

Chinese state-owned and non-state-owned companies in Southeast Asia, possessing

the first-grade general contractor qualification certificate for conducting port, waterway

and marine engineering business in the PRC





marine engineering business in the PRC, which has enabled us to undertake all of the port and

waterway engineering work and/or services in the PRC. In order to obtain and maintain our

qualification, we are required to meet certain thresholds, including the amount of our net

assets, the number of our certified engineers and the number of our completed port, waterway

and marine engineering projects showing our relevant experience. We believe that it is hard for

the new players to enter into this industry and obtain the relevant qualification. According to

Frost & Sullivan, Chinese state-owned enterprises account for over 90% of the market share

of the PRC port, waterway and marine engineering industry. We ranked ninth in the whole port,

waterway and marine engineering industry in the PRC and we were also the second largest

port, waterway and marine engineering company among all Chinese state-owned and non-

state-owned companies in Southeast Asia, both in terms of revenue in 2017.

We believe that with our extensive operational experience over 20 years by conducting a

diversified range of port, waterway and marine engineering projects in the PRC, we possess

in-depth industrial knowledge and strong technical capabilities, which have allowed us to

capture the significant market opportunities presented by the high growth of the PRC port,

waterway and marine engineering market in the recent decades. During the Track Record

Period and up to the Latest Practicable Date, we had completed 108 port infrastructure

projects and 18 waterway engineering projects. By providing high quality port, waterway and

marine engineering work and/or services, we have been well recognised by the industry and

have also been accredited with various awards and recognition, such as the National

Enterprise with Good Credit in Honouring Contracts (全國守合同重信用企業) from 2003 to 2015

issued by National Administration of Industry and Commerce of the PRC (中華人民共和國國家工商行政管理總局), AAA Credit Rating Enterprise (合同信用AAA等級) from 2006 to 2018 issued

by Shanghai Contract Credit Promotion Association (上海市合同信用促進會), Excellent

Construction Enterprise of National Water Transportation Construction Project (全國水運工程建設優秀施工企業) from 2011 to 2018 issued by China Water Transportation Construction

Industry Association (中國水運建設行業協會) and National Excellent Engineering Project in

China Power Investment Zhuhai Hengqin Island Multiple Supply Gas Energy Station

BUSINESS

– 179 –


2x390MW Project (中電投珠海橫琴島多聯供燃氣能源站2x390 MW工程榮獲2016-2017年度國家優質工程獎) issued by China Construction Enterprise Management Association (中國施工企業管理協會) in 2016. We believe that we are well-positioned to act as a strong performer in thePRC port, waterway and marine engineering industry, and our current leading market positionin the PRC will continue to support our future growth.

We are well-positioned to capture opportunities in overseas markets

As part of our development strategy to differentiate our competitive advantage againstlarge-scale Chinese state-owned port, waterway and marine engineering companies, in 2016,we became one of the pioneers in the PRC to set foot in Southeast Asia by expanding ourbusiness in Brunei and Indonesia. As at the Latest Practicable Date, we had eight projects inprogress and one project on hand in Brunei and Indonesia with an aggregate contract value ofapproximately RMB1,362.1 million and RMB32.8 million, respectively. We believe that ouroverseas expansion and international presence during these two years have enabled us totake an advantageous position over our competitors in the PRC by having diversified projectsand building a strong reputation in both of the port, waterway and marine engineeringindustries in the PRC and Southeast Asia.

Further, we believe that the introduction of China’s Belt and Road Initiative, which aims toestablishing economic land belt that includes countries on the original Silk Road as well as amaritime road that links China’s port facilities with the African coast, has provided us withtremendous business opportunities in the Southeast Asian markets. Leveraging our diversifiedand extensive experience gained over various significant port, waterway and marineengineering projects in the PRC, accumulated reputable and loyal customer base and fullrange of construction equipment and vessels, we believe that we have been benefited from theincreased port, waterway and marine engineering projects carried out by the major Chinesestate-owned enterprises and public and private companies in the Southeast Asian countries.We also believe that by entering into Brunei and Indonesia, we are already familiar with thestandards and requirements of some project owners in the Southeast Asian markets ascompared to our competitors and are equipped with solid and comprehensive experience,which have allowed us to conduct projects in these overseas markets in a more effective andefficient manner.

We have an experienced and high calibre management team with a proven track record

We have an experienced and dedicated management team led by our chairman andexecutive Director, Mr. Wang, who has over 30 years of experience in port, waterway andmarine engineering industry in the PRC and possesses extensive technical know-how andproject management experience. Our other executive Directors, Mr. Wang Xiuchun (王秀春),Mr. Wang Lijiang (王利江) and Ms. Wan Yun (萬雲), also have more than 25, six and 16 yearsof experience in port, waterway and marine engineering industry, investment and/oraccounting, respectively.

Our experienced business team comprises industry experts, who possess extensiveexperience in the port, waterway and marine engineering industry for an average of 20 years.

BUSINESS

– 180 –


The majority of our core management team members have also worked for our Group for more

than 11 years and participated in various high-profile port infrastructure projects in the PRC

and Southeast Asia. Please refer to the section headed “Directors, Senior Management and

Employees” in this document for further details of our Directors’ and senior management

team’s biographies. Our port and waterway engineering work requires expertise in project

planning, management, procurement and construction. This involves knowledge in the

functioning of construction equipment and vessels, assessment of site and weather

conditions, types and sourcing of raw materials and subcontracting services and the overall

decision-making on our projects. We believe that our experienced senior management team

has played a key role in managing and leading our business operation and provided us with

deep industry and operation knowledge, which have been and will continue to be the key to our

success in our future operations and profitability.

We are able to manage and conduct our operation in a centralised and effective manner

with the support of stable raw material suppliers and subcontractors

Our business stability and financial performance are closely associated with our

operational efficiency. Although each of our projects is accounted independently, we generally

adopt a standardised and streamlined project process across our entire value chain of

business operation, including project evaluation and establishment, tender participation,

construction, procurement and subcontracting, quality control and customer services. We

implement a two-tier management structure for each of our projects, with our project team

consisting of our core senior management team and key responsible persons from each

functional department as the first tier to overall plan and supervise our projects, and project

managers and working personnel designated for each of our projects as the second tier to be

responsible for day-to-day project operation. For our overseas operation, we typically

designate a project team with specific professional and management skills to various overseas

project sites and conduct some local procurement and hiring if needed. We believe that such

management structure will allow us to manage and conduct our overseas projects in a

centralised and effective manner.

In addition, we have established long-term relationship with our raw material suppliers

and subcontractors. As at 30 April 2018, we had more than 410 qualified raw material suppliers

and 160 subcontractors. We believe that our strong and stable relationship with our raw

material suppliers and subcontractors together with our large scale of operation and

purchasing power have enabled us to access to key raw materials and subcontracting services

among our qualified raw material suppliers and subcontractors at a relatively better pricing,

which in turn, have helped us to reduce our cost of sales and hence, maintain our

competitiveness both in the PRC and Southeast Asian markets.

Our customer-oriented strategy has enabled us to develop a strong customer base

We believe that our proven track record and extensive experience have enabled us to

build a strong reputation in the port, waterway and marine engineering industry in the PRC.

Through years of operation, we have established stable business relationship with various

BUSINESS

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major Chinese state-owned enterprises and public and private companies, including thelargest PRC port infrastructure company according to Frost & Sullivan, which was also one ofour top five customers during the Track Record Period. Some of these customers have givenus recurring work and provided us with opportunities to tender for or participate in large-scaleport, waterway and marine engineering projects in the PRC and Southeast Asia as the maincontractor. During the years, we have successfully obtained various certifications and awardsfrom certain government authorities in recognition of the high quality of our port and waterwayengineering work and/or services conducted for various customers.

Our customers typically impose stringent requirements and standards for our port,waterway and marine engineering work and services. In order to maintain stable businessrelationship with these customers, we have implemented a customer-oriented strategy andmade continuous efforts to promote their customers’ experience with us. We have a specificproject team designated to each of our key customers in order to regularly communicate withthem and promptly respond to their needs and requests. We also have designated qualitycontrol staff stationed in our construction site to assist on issues encountered during theconstruction process. Moreover, our core management team will also personally participate inclient meetings and discussions to ensure that we provide high quality work and services to ourmajor customers. We believe that our fast-response, customer-oriented service mechanismand strong technical know-how and capabilities have helped us to build and maintain areputable and loyal customer base, gain deep insight of the industry and capture marketopportunities, which have distinguished us from our competitors and contributed to the growthof our business.

We have the ability to construct specialised wharfs

According to Frost & Sullivan, wharfs can be divided into general wharfs and specialisedwharfs by their functionality. General wharfs refer to wharfs in which various kinds of cargoscontaining normal goods can be loaded and unloaded. Specialised wharfs are typicallydesigned and tailor-made to facilitate the handling of certain kinds of cargos containingspecified goods, such as coal, minerals, oil, liquefied petroleum gas and natural gas, or for thespecified uses, such as fishing wharfs, container wharfs and car/passenger ferry wharfs. Asspecialised wharfs are typically constructed by enterprises for their own specific industrialneeds, project owners typically prefer engaging contractors/subcontractors that have therelevant experience in constructing specialised wharfs and are able to work more effectivelyand efficiently in terms of timing and costs and to flexibly adapt to changes of project schedulesand scope of work. During the Track Record Period and up to the Latest Practicable Date, wehad successfully completed 58 specialised wharf projects among all of our 108 completed portinfrastructure projects. As at the Latest Practicable Date, we had 21 specialised wharf projectsin progress and four specialised wharf projects on hand. We are also the qualified contractorfor the largest two nuclear state-owned enterprises in the PRC. According to Frost & Sullivan,while construction of general wharfs in the PRC is nearly reaching its saturation point afteryears of fast development, construction of specialised wharfs is still in developing stage. Webelieve that by leveraging our long operating history, extensive industrial experience, efficientand effective business operation and strong customer base, we have been and will continue towin more specialised wharf projects, which in turn, will help us maintain our competitivenessand profitability.

BUSINESS

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FUTURE STRATEGIES

We intend to further strengthen our leading position in the port, waterway and marine

engineering industry in the PRC and continue to expand our business in Southeast Asia. We

plan to achieve our goals by pursuing the following principal future strategies:

Further strengthen our leading market position in the port, waterway and marine

engineering industry in the PRC

We will continue to strengthen our leading position in the port, waterway and marine

engineering industry in the PRC. Our Directors believe that our ability to secure contracts

mainly depends on our quality of work and services, fast response to the industry development

and business environment, competitive tender prices and strong and long-term relationship

with our customers, suppliers and subcontractors. According to Frost & Sullivan, while

construction of general wharfs in the PRC is reaching its saturation point after years of fast

development, construction of specialised wharfs is still under development. In particular,

government has set plans to improve port infrastructure and encourage state-owned and/or

private enterprises to construct more specialised wharfs along the coastal areas, including

Jiangsu province, Zhoushan and cities in Guangdong-Hong Kong-Macao Bay Area, to support

the regional sea transportation and economic growth. Further, according to Frost & Sullivan,

the PRC government has also been promoting land reclamation in nearby sea areas, such as

Zhoushan, Hainan and Guangdong-Hong Kong-Macao Bay Area, which requires a huge

amount of waterway engineering work, and this will also stimulate the port, waterway and

marine engineering industry in the PRC. As such, we plan to continue to focus on the PRC port,

waterway and marine engineering market in the near future to capture the potential growth and

increase our market share. We intend to deepen our relationships with our existing customers

by continuously providing them with a range of high quality port, waterway and marine

engineering work and services with our customer-oriented strategy as this will likely offer us

additional business opportunities. We will also continue to seek quality raw material suppliers

and subcontractors to lower our operational costs and upgrade and invest in our construction

equipment and vessels as our future growth and success depends, to a large extent, on our

profit margin and ability to secure and conduct more large projects.

Further, by [REDACTED] on the Stock Exchange, we will be able to gain access to the

international capital market in order to enhance our reputation and increase our working

capital and fund raising capability. As larger project owners increasingly require their

contractors/subcontractors to show their ability to bear more upfront costs, including requiring

the contractors/subcontractors to put down more performance deposits or bear more

construction costs, such as costs of raw materials, subcontracting and labour, and/or accept

longer receivable collection period, we believe that our future [REDACTED] status, the

[REDACTED] from the [REDACTED] and our future enhanced fund raising capability will help

us to increase our chances of success in obtaining and enhance our ability to participate in

larger projects, and also help us to maintain sufficient amount of working capital and cash flow

to meet our project funding requirements. For more details, please refer to the section headed

“Future Plans and [REDACTED] – Reasons for [REDACTED]” in this document.

BUSINESS

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Continue to capture increased business opportunities in Southeast Asia from China’s

Belt and Road Initiative and enhance our international reputation

China’s Belt and Road Initiative announced in November 2014 aims to promote economic

cooperation among the countries on the original Silk Road through Central Asia, West Asia,

the Middle East and Europe by linking transportation infrastructures, sharing of port resources

and facilitating increased economic cooperation and trade. According to Frost & Sullivan,

China’s Belt and Road Initiative will continue to stimulate fixed assets investment in

infrastructure in Southeast Asia in the next few years. Such stimulation will in turn, lead to a

rapid growth of the port, waterway and marine engineering industry in Southeast Asia from

2017 to 2022, with a CAGR of approximately 8.9% reaching approximately USD12.7 billion in

2022. As such, we believe that China’s Belt and Road Initiative will provide us with more

business opportunities in Southeast Asia as the major Chinese state-owned enterprises and

public and private companies in the PRC are likely to continue to invest more resources and

undertake more port, waterway and marine engineering projects in less economically

developed countries in this region, such as Brunei, Indonesia, Vietnam and the Philippines.

Such countries with limited economic resources and experience in port, waterway and marine

engineering are likely to welcome increased investments in their port infrastructure to improve

access, trade and standards of living, which will bring us more business opportunities.

We established our subsidiaries in Brunei and Indonesia both in 2016. For the two years

ended 31 December 2016 and 2017 and the four months ended 30 April 2018, our revenue

generated from our business operation in Brunei and Indonesia was approximately RMB92.2

million, RMB443.5 million and RMB174.4 million, respectively. As at the Latest Practicable

Date, we had eight projects in progress and one project on hand in Brunei and Indonesia with

an aggregate contract value of approximately RMB1,362.1 million and RMB32.8 million,

respectively. We believe that we will continue to benefit from China’s Belt and Road Initiative

by cooperating closely with our existing customers in Southeast Asia, which, to the best

knowledge of our Directors, are the overseas affiliates of some of our major customers in the

PRC which are the major Chinese state-owned enterprises and public and private companies.

We also plan to explore new business opportunities in Southeast Asia by establishing our

presence in Vietnam, the Philippines and Malaysia. Leveraging our overseas project

experience in Brunei and Indonesia during the Track Record Period and the business network

and relationship with our customers, we believe that we have a first-mover advantage over our

competitors in the PRC and are well-positioned to capture the increasing business

opportunities in Southeast Asia driven by China’s Belt and Road Initiative. We further believe

that our continuous pursuit of business opportunities in overseas markets can diversify our

sources of revenue and reduce our exposure to market downturns in the PRC. At the same

time, we can also continue to accumulate more overseas experience and project track record

to boost our international reputation in the port, waterway and marine engineering industry and

among our customers.

BUSINESS

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Continue to focus on operational efficiency, enlarge our scale of operation and recruit

talents

We plan to continue to improve our operational efficiency. In doing so, we intend to

continuously focus on improving and upgrading our port infrastructure and waterway

engineering technologies, vessels and construction equipment and operating facilities, and

streamlining our operational process to enhance efficiency and achieve savings in our

operational costs. To minimise our exposure to raw material price volatility, we also plan to

continue to maintain good relationship with our raw material suppliers and subcontractors to

source and secure stable supply of raw materials and subcontracting services at competitive

pricing. Further, we intend to continuously enlarge our scale of operation, especially in

Southeast Asia. In addition, we plan to recruit additional high quality comprehensive talent, in

particular, experienced project managers equipped with extensive industrial knowledge, and

personnel with English language capability and accounting skills to expand our teams in both

of the PRC and Southeast Asia. We also plan to continue to collaborate with well-known

universities and institutes for port, waterway and marine engineering industry on project basis

to expand our teams. For more details of our future plan of purchasing new vessels and

construction equipment and talent recruitment, please refer to the section headed “Future

Plans and [REDACTED] – [REDACTED]” in this document.

Pursue strategic investment to achieve vertical business integration and become an

integrated marine engineering service provider

We will consider to explore strategic investment to achieve vertical business integration

and enhance our integrated service capabilities. Specifically, we will consider acquiring small

to medium-sized design institute or research and development centre focusing on port,

waterway and marine engineering industry to obtain the first-mover advantage to get involved

in the potential projects at much earlier stage, which in turn, will help us to enhance our ability

to win projects and hence, improve our revenue and profitability. Further, our investment

strategy will also help us to enhance our design, research and development capability for port

infrastructure engineering technologies so that we can expand our business scope and have

the capability to execute all the activities from design, procurement, construction to handover

of the projects to our clients, which in turn, will increase our competitiveness and profitability.

For more details, please refer to the section headed “Future Plans and [REDACTED] –

[REDACTED]” in this document. In addition, we will consider to explore strategic cooperation

with renowned universities and research and development centres in order to enhance our

development in technologies and patents of our port infrastructure and waterway engineering.

Further, we will also seek strategic partnership that can provide synergies to our business or

enable us to provide a full range of integrated services across different phases of a project. As

at the Latest Practicable Date, we had not identified any suitable target for such strategic

investment.

BUSINESS

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OUR BUSINESS MODEL


the PRC and the second largest port, waterway and marine engineering company among all

Chinese state-owned and non-state-owned companies in Southeast Asia, both in terms of

revenue in 2017 according to Frost & Sullivan. Throughout the years, we have been operating

in core and specialised areas of the port, waterway and marine engineering industry, primarily

focusing on port infrastructure and waterway engineering. According to Frost & Sullivan, we

are currently one of the only twelve non-state-owned enterprises in the PRC that possesses

the first-grade general contractor qualification certificate granted by MOHURD for conducting

port, waterway and marine engineering business in the PRC, which has enabled us to

undertake all of the port and waterway engineering work and/or services in the PRC. As such,

we are able to proactively seek the opportunities in appropriate markets and participate in

tenders and undertake contract work as main contractors for projects developed by the PRC

government, state-owned enterprises and public and private companies. We have our own

fleet of vessels and construction equipment that are specifically designed to carry out our port

and waterway marine engineering work and services. We also subcontract part of our raw

material procurement, leasing of various vessels and construction equipment and various

labour intensive construction and ancillary work to third-party subcontractors, while we closely

monitor the quality and cost of our project progress.

The following diagram illustrates our business model:

- Identifying potential projects

- Conducting evaluation and

preparing for tenders

- Determining tender prices

and submitting tenders

Completion phase

- Final inspection and

verification by

customers

- Providing warranty

during defect liability

period for one to

two years

Marketing and sales phase

- Preparing project execution

plan

- Commencing projects

Planning phase

- Commencing construction

- Procuring raw materials and

subcontracting

- Customer-oriented services

during the projects

Execution phase

BUSINESS OVERVIEW

During the Track Record Period, we primarily focused on and generated our revenue from

the provision of port infrastructure and waterway engineering work and services in the PRC

and Southeast Asia. Our port infrastructure work primarily includes wharf construction. We

also conduct a small portion of other port infrastructure work, such as breakwater and

revetment construction and land yard construction. Our waterway engineering work primarily

includes waterway dredging and improvement and land reclamation.

BUSINESS

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The table below sets out our revenue by our core business segment for the periods

indicated:


2015 2016 2017 2017 2018

RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue

(Unaudited)

Port infrastructure . . 931,387 82.8 925,471 73.2 1,362,268 96.5 217,876 100.0 264,166 98.4– The PRC . . . . . 931,387 82.8 833,246 65.9 918,785 65.1 139,788 64.2 89,750 33.5– Southeast Asia. . – – 92,225 7.3 443,483 31.4 78,088 35.8 174,416 64.9

Waterway

engineering(1) . . . 193,267 17.2 338,314 26.8 49,700 3.5 – – 4,382 1.6

Total: . . . . . . . . . 1,124,654 100.0 1,263,785 100.0 1,411,968 100.0 217,876 100.0 268,548 100.0

Note:

1. During the Track Record Period, we had only conducted waterway engineering work and/or services in the

PRC.

As part of our development strategy to differentiate our competitive advantage against

large-scale state-owned port, waterway and marine engineering companies in the PRC, we

became one of the pioneers in the PRC to set foot in Southeast Asia by expanding our

business in Brunei and Indonesia in 2016 following China’s Belt and Road Initiative. We

believe that the introduction of China’s Belt and Road Initiative has provided us with

tremendous business opportunities in the Southeast Asia’s port infrastructure market.

Furthermore, by leveraging our existing diversified and extensive experience gained over

various significant port, waterway and marine engineering projects in the PRC and full range

of construction equipment and vessels, we have been benefited from the increasing port,

waterway and marine engineering projects in the Southeast Asian countries carried out by our

existing reputable and loyal customers, which are mainly the major Chinese state-owned

enterprises and public and private companies, and at the same time, we can also gain new

local customers in the Southeast Asian markets.

BUSINESS

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Our revenue derived from our business operation in Southeast Asia increased rapidlyduring the Track Record Period due to our successful implementation of the developmentstrategy. In addition, recognition of our revenue is largely depending on the progress/phase ofour projects. As such, our revenue recognised in the PRC or Southeast Asia for a particularperiod of time during the Track Record Period fluctuated depending on the amount of workand/or services conducted/completed by us under certain phases of our projects in theseregions during a particular period of time. The table below sets out our revenue by geographiclocation for the periods indicated:


2015 2016 2017 2017 2018

RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue

(Unaudited)

The PRC . . . . . . . 1,124,654 100.0 1,171,560 92.7 968,485 68.6 139,788 64.2 94,132 35.1Southeast Asia . . . . – – 92,225 7.3 443,483 31.4 78,088 35.8 174,416 64.9

– Brunei . . . . . . – – 92,225 7.3 384,957 27.3 71,184 32.7 162,669 60.5– Indonesia. . . . . – – – – 58,526 4.1 6,904 3.1 11,747 4.4

Total: . . . . . . . . . 1,124,654 100.0 1,263,785 100.0 1,411,968 100.0 217,876 100.0 268,548 100.0

Our major port infrastructure and waterway engineering projects

We have participated in numerous major port infrastructure and waterway engineeringprojects in the PRC since our commencement of business. We believe that with our extensiveoperational experience over 20 years in the PRC port, waterway and marine engineeringindustry, we have possessed in-depth industrial knowledge and strong technical capabilities,which have allowed us to capture the significant market opportunities presented by the highgrowth of the PRC port, waterway and marine engineering market in recent decades.

During the Track Record Period and up to the Latest Practicable Date, our major portinfrastructure and waterway engineering projects in the PRC include, among others:

• Main contractor for Shenzhen Liquefied Natural Gas Project (Diefu Site) Port

Engineering Project (深圳液化天然氣項目(迭福站址)碼頭工程) – port infrastructure –

our work includes the construction of one 100,000 tons LNG coastal wharf;

• Main contractor for Nanjing Harbour Xiba Port Area (Xiba Operation Area) Phase

Five Project (南京港西壩港區西壩作業區五期工程) – port infrastructure – our work

includes the construction of two 70,000 tons general bulk cargo wharf, one 50,000

tons general bulk cargo wharf and one 1,000 tons bulk cargo wharf at the back of port

downstream edge;

BUSINESS

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• Main contractor for Hangpingshen Line (Zhejiang Section) Pinghu SectionWaterway Reconstruction Project (杭平申線(浙江段)航道改造工程平湖段) – waterwayengineering – our work includes the modification of 5.2km waterway according to thethird-class waterway standard and the excavation of 333,300m3 waterwayearthwork including dredging; and

• Main contractor for Zhoushan Economic Development Zone New Harbour Park AreaDiaoliang District Phase I Area A First Section Land Reclamation Project (舟山經濟開發區新港園區釣梁區域成陸一期工程A區吹填第1標段) – waterway engineering – ourwork includes land reclamation of 1,730,000m2, of which the amount of reclamationis approximately 7.78 million m3 and the total long of bagged cofferdam embankmentis 3,598 metres.

During the Track Record Period and up to the Latest Practicable Date, our major portinfrastructure projects in Southeast Asia include, among others:

• Brunei Petrochemical Engineering Port Project and Supporting Construction – portinfrastructure – our work includes the construction of six new high-pile wharfs, whichare the number one and number two 50,000 tons oil transportation wharfs in the westdistrict, number four and number five 30,000 tons of chemical-grade wharfs in theeastern district, number six 10,000 tons of general cargo wharf and number seven2,000 tons of gravity wharf;

• Brunei Petrochemical Engineering Coal Port (Hydraulic) Project – port infrastructure– our work includes the construction of 35,000 tons coal and high-pile girder wharfand relevant revetment engineering work;

• Brunei Concrete Engineering Project – other port infrastructure work – our workincludes concrete pouring and relevant construction engineering work; and

• Indonesia Conch Cement Limited with Clinker Production Line Special Port – portinfrastructure – our work includes the construction of 12,000 tons of bulk cargowharf, 5,000 tons of bulk cement export wharf, and 5,000 tons of general cargowharf.

Projects completed during the Track Record Period

During the Track Record Period, we primarily acted as main contractor for the majority ofour projects in the PRC as we possess the first-grade general contractor qualificationcertificate granted by MOHURD for conducting port, waterway and marine engineering in thePRC. We also act as subcontractor in some of the projects as we are also a qualifiedsubcontractor for all of our customers. For our overseas markets, we have benefited fromChina’s Belt and Road Initiative by cooperating closely with our existing customers inSoutheast Asia, which, to the best knowledge of our Directors, are the overseas affiliates ofsome of our major customers in the PRC. We also act as main contractor and/or subcontractorfor our projects in Southeast Asia.

BUSINESS

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During the Track Record Period and up to the Latest Practicable Date, we had completed

108 port infrastructure projects and 18 waterway engineering projects in the PRC. As at the

Latest Practicable Date, we had not yet completed any project in Brunei or Indonesia. Our

Directors confirmed that we did not have any loss-making projects during the Track Record

Period and up to the Latest Practicable Date. The table below sets out the information of our

major projects completed by us during the Track Record Period and up to the Latest

Practicable Date with each project’s final settlement value exceeding RMB50 million:

Project nameMajor typesof work

Projectduration(1)

Final settlementvalue (including

tax)(2)

(approximately)(RMB in million)

Revenuerecognised

during eachyear/period of

the TrackRecord Period(4)

(excluding tax)(approximately)(RMB in million) Location Our role

2018

N/A N/A N/A N/A N/A N/A N/A

2017

Hainan Wanning Riyue BayArtificial Island – HydraulicMain Works of the SeaReclamation Project on theYue Island(3)

Port infrastructure(specialisedwharf)

August 2013 toNovember 2017

453.9 2017: 307.62016: 42.6

2015: 0.3

Wanning,Hainanprovince,the PRC

Main contractor

Xiamen Zhong Ao YachtBasin Project(3)


June 2015 toNovember 2017

298.2 2017: 216.52016: 62.82015: 10.6

Xiamen,Fujianprovince,the PRC

Main contractor

Shenzhen Liquefied NaturalGas Project (Diefu Site)Port Engineering Project


March 2014 toFebruary 2017

243 2017: 0.62016: 13.52015: 60.1

Shenzhen,Guangdongprovince,the PRC

Main contractor

Qiantangjiang Middle andUpper Reaches Qujang(Quzhou Section)Shipping DevelopmentProject Anrenpu Huband Ship Lock Project(Ship Lock Mark)

Waterwayengineering

July 2013 toDecember 2017

189.8 2017: 0.92016: 47.82015: 61.3

Quzhou,Zhejiangprovince,the PRC

Main contractor

Qinzhou Port Jingujiang WestCoast Land Formation(Reclamation) Project MarkSection I

Waterwayengineering

October 2015 toAugust 2017

98.5 2017: 31.32016: 50.12015: 14.9

Qinzhou,Guangxiprovince,the PRC

Main contractor

BUSINESS

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Projectduration(1)


tax)(2)


Revenuerecognised




Waterway ReconstructionProject (Wuxing Bridge-Changsheng Bridge) ofHangpingshen Line(Zhejiang Section)(3)

Waterwayengineering

August 2014 toOctober 2017

60.9 2017: 82016: 20.5

2015: 28

Jiaxing,Zhejiangprovince,the PRC

Main contractor

Panjin Port RongxingPort Area West ZoneLiquid ChemicalBerth Project(3)


December 2015to November2017

59.6 2017: 13.72016: 24.32015: 20.9

Panjin,Liaoningprovince,the PRC

Main contractor

2016

Guangdong LNG HydraulicPort Project


August 2013 toAugust 2016

353.6 2016: 0.42015: 40.2

Jieyang,Guangdongprovince,the PRC

Subcontractor

Big Offshore Island Project(3) Port infrastructure(others)

June 2013 toAugust 2016

224.8 2016: 622015: 64.5

Dalian,Liaoningprovince,the PRC

Main contractor

Dadong Port Area DadongShipyard TonggangLogistics Phase IV LandReclamation Project(3)

Waterwayengineering

March 2016 toOctober 2016

212.8 2016: 206.62015: nil

Dandong,Liaoningprovince,the PRC

Main contractor

Zheneng Jiaxing DushanCoal Transit TerminalProject


March 2015 toJanuary 2016

69.1 2016: 2.62015: 59.1

Jiaxing,Zhejiangprovince,the PRC

Main contractor

Xiamen Yuanhai AutomatedContainer TerminalReconstructionDemonstration Project(Phase I)


June 2014 toNovember 2016

68.3 2016: 5.22015: 11.8

Xiamen,Fujianprovince,the PRC

Main contractor

Hangpingshen Line(Zhejiang Section)Pinghu SectionWaterwayReconstruction Project

Waterwayengineering

November 2013to June 2016

67.9 2016: 6.72015: 42

Pinghu,Zhejiangprovince,the PRC

Main contractor

BUSINESS

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Projectduration(1)


tax)(2)


Revenuerecognised




Yisheng DahuaPetrochemical Co., LtdBreakwater and RevetmentReinforcement Project(3)

Port infrastructure(others)

October 2013 toMay 2016

59.8 2016: 4.32015: 14.4

Dalian,Liaoningprovince,the PRC

Main contractor

2015

Yanwei Port Operation AreaStation Number Two

Port infrastructure(general wharf)

December 2012to August 2015

116.6 2015: 3.4 Lianyungang,Jiangsuprovince,the PRC

Main contractor

Nanjing Habour Xiba PortArea (Xiba Operation Area)Phase Five Project


November 2013to February2015

83.3 2015: 0.6 Nanjing,Jiangsuprovince,the PRC

Main contractor

Shengsi CountyShenjiawan PassengerTransportation CenterPhase II Project


March 2015 toDecember 2015

61.6 2015: 61.6 Zhoushan,Zhejiangprovince,the PRC

Main contractor

Maanshan Gang CihuIntegrated Port


August 2014 toSeptember2015

59.9 2015: 33.9 Maanshan,Anhuiprovince,the PRC

Main contractor

Taixing Port Area QiyuHongqiao Port OperationProject


December 2014to October 2015

50.7 2015: 10.4 Taixing,Jiangsuprovince,the PRC

Main contractor

Notes:

1. The project duration refers to the period from the actual commencement date of our project as instructed by ourcustomer to the actual project completion date.

2. During the Track Record Period and up to the Latest Practicable Date, we had completed 105 projects witheach project’s final settlement value below RMB50 million. The total revenue (excluding tax) recognised forthese 105 projects was approximately RMB676.7 million in aggregate during the Track Record Period.

3. During the Track Record Period, we had eight projects with each project’s final settlement value exceedingRMB50 million that have been completed but not yet received the handover acceptance certificates from ourcustomers.

4. 2015 refers to the year ended 31 December 2015; 2016 refers to the year ended 31 December 2016; and 2017refers to the year ended 31 December 2017.

BUSINESS

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Projects in progress as at the Latest Practicable Date

As at the Latest Practicable Date, we had a total of 37 projects in progress in the PRC and

Southeast Asia, which represent contracts for work awarded to us but have not yet been

completed, with a total contract value of approximately RMB3,221.4 million, of which

approximately RMB1,702.9 million was recognised as revenue during the Track Record

Period. The table below sets out the information of our major projects in progress as at the

Latest Practicable Date with each project’s contract value exceeding RMB50 million:

Project name

Major types

of work

Commencement

date with

expected

completion date

Contract value(1)

(RMB in million)

Revenue

recognised

during each

year/period of

the Track

Record Period(4)

(excluding tax)

(approximately)

(RMB in million)

Expected

revenue

contribution for

the eight months

ending

31 December

2018 and the

year ending

31 December

2019

(approximately)

(RMB in million) Location Our role

Tangshan Port Caofeidian

Area Phase III Coal Port

Project – Construction of

Port Hydraulic Structure

and Basin Dredging Work

Port infrastructure

(specialised

wharf)

September 2014

to December

2018

515.8 20180430: 3.6

2017: 67.8

2016: 125

2015: 232.7

62.8/nil Caofeidian,

Hebei

province,

the PRC

Main

contractor

Brunei Concrete Engineering

Project

Port infrastructure

(others)

May 2017 to

May 2019

400 20180430: 120.5

2017: 143.6

2016: nil

2015: nil

86.7/49.2 Brunei Main

contractor

Third Harbor The Second

Company Qidong

Reconstruction and

Expansion Project

Port infrastructure

(specialised

wharf)

March 2015 to

November 2018

349.8 20180430: 46.6

2017: 88.3

2016: 112.3

2015: 70.1

51.8/nil Qidong,

Jiangsu

province,

the PRC

Subcontractor

Brunei Petrochemical

Engineering Port Project

and Supporting

Construction

Port infrastructure

(specialised

wharf)

July 2016 to

December 2018

305.6 20180430: 20.6

2017: 101.7

2016: 92.2

2015: nil

96.9/nil Brunei Main

contractor

BUSINESS

– 193 –


Project name

Major types

of work

Commencement

date with

expected

completion date

Contract value(1)

(RMB in million)

Revenue

recognised

during each

year/period of

the Track

Record Period(4)

(excluding tax)

(approximately)

(RMB in million)

Expected

revenue

contribution for

the eight months

ending

31 December

2018 and the

year ending

31 December

2019

(approximately)


No. 1-3 Berth Hydraulic

Engineering for the Phase

1 Construction of the

YiZheng Public Wharf in

the Yangzhou YiZheng

Port Siyuangou Operation

Area

Port infrastructure

(general wharf)

August 2018 to

August 2020

185.2 20180430: nil

2017: nil

2016: nil

2015: nil

73.6/95.4 Yangzhou,

Jiangsu

province,

PRC

Main

contractor

Yancheng Sheyang Harbour

Area General Phase III

Wharf Construction

Project

Port infrastructure

(general wharf)

February 2016 to

December 2018

174 20180430: 12.8

2017: 25.4

2016: 100.9

2015: nil

30/nil Yancheng,

Jiangsu

province,

the PRC

Main

contractor


Engineering Port Project-

Supporting and Pile

Foundation Construction(3)

Port infrastructure

(specialised

wharf)

November 2016

to June 2020

172 20180430: 4

2017: 53.1

2016: nil

2015: nil

nil/nil Brunei Main

contractor

Xie Xin Indonesia

(West Kalimantan Barat)

Coal-Fired Power Plant

Port Project

Port infrastructure

(specialised

wharf)

August 2018 to

July 2020

151.1 20180430: nil

2017: nil

2016: nil

2015: nil

64.6/72.8 Indonesia Subcontractor


Engineering Coal Port

(Hydraulic) Project

Port infrastructure

(specialised

wharf)

April 2017 to

December 2018

120 20180430: 17.6

2017: 86.5

2016: nil

2015: nil

15.9/nil Brunei Main

contractor

BUSINESS

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Project name

Major types

of work

Commencement

date with

expected

completion date

Contract value(1)

(RMB in million)

Revenue

recognised

during each

year/period of

the Track

Record Period(4)

(excluding tax)

(approximately)

(RMB in million)

Expected

revenue

contribution for

the eight months

ending

31 December

2018 and the

year ending

31 December

2019

(approximately)


Dongying Port Area

Waterway Entry and

Division Work

Waterway

engineering

May 2018 to

May 2019

115.4 20180430: nil

2017: nil

2016: nil

2015: nil

77.3/27.6 Dongying,

Shandong

Province,

PRC

Subcontractor

Indonesia Conch Cement

Limited with Clinker

Production Line Special

Port Project(2)

Port infrastructure

(specialised

wharf)

October 2016 to

November 2018

110.4 20180430: 11.8

2017: 58.5

2016: nil

2015: nil

4.5/nil Indonesia Main

contractor

Dazhongzhuang General

Port Waiganmen

Operation Area at

Xiangshan Port(3)

Port infrastructure

(general wharf)

March 2018 to

September

2019

89.2 20180430: 1.8

2017: nil

2016: nil

2015: nil

34.4/44.8 Ningbo,

Zhejiang

province,

the PRC

Main

contractor

Wharf Construction Project

for Design, Procurement

and Construction (Main

Contractor) Indonesia

SULBAGUT-1 2x50MW

(Net) Coal-Fired Power

Plant

Port infrastructure

(specialised

wharf)

September 2018

to July 2019

82 20180430: nil

2017: nil

2016: nil

2015: nil

50.9/23.6 Indonesia Subcontractor

Tongling Yongfeng Port Area

Xinxingjihua General

Terminal Phase I Project

Port infrastructure

(general wharf)

September 2014

to December

2018

77 20180430: nil

2017: nil

2016: 7

2015: 43.5

4/nil Tongling,

Anhui

province,

the PRC

Main

contractor

BUSINESS

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Project name

Major types

of work

Commencement

date with

expected

completion date

Contract value(1)

(RMB in million)

Revenue

recognised

during each

year/period of

the Track

Record Period(4)

(excluding tax)

(approximately)

(RMB in million)

Expected

revenue

contribution for

the eight months

ending

31 December

2018 and the

year ending

31 December

2019

(approximately)


Qushan Island Ferry

Terminal Reconstruction

Project

Port infrastructure

(specialised

wharf)

July 2018 to

February 2019

52.6 20180430: nil

2017: nil

2016: nil

2015: nil

40/7.8 Zhoushan,

Zhejiang

province,

PRC

Main

contractor

Total: 2,899.9 1,647.9 693.4/321.2

Notes:

1. As at the Latest Practicable Date, we had 22 projects in progress with each project’s contract value belowRMB50 million. The total contract value from these 22 projects in progress was approximately RMB321.5million. The total revenue (excluding tax) recognised from these 22 projects in progress was approximatelyRMB55 million in aggregate during the Track Record Period. The total expected revenue contribution of these22 projects in progress for the eight months ending 31 December 2018 and the year ending 31 December 2019was approximately RMB210.5 million and RMB28.2 million, respectively.

2. For our project in Indonesia, payments received by us are subject to withholding taxes and the amount shownabove are before deduction of the relevant withholdings taxes.

3. Brunei Petrochemical Engineering Port Project – Supporting and Pile Foundation Construction (the “BruneiSupporting Project”) is part of Brunei Petrochemical Engineering Port and Supporting Construction Project.We have completed the first part of the construction work under the Brunei Supporting Project and realisedrevenue of approximately RMB57.1 million during the Track Record Period. We expect that the second part ofthe construction work under the Brunei Supporting Project will commence in 2020.

4. 2015 refers to the year ended 31 December 2015; 2016 refers to the year ended 31 December 2016; 2017refers to the year ended 31 December 2017; and 20180430 refers to the four months ended 30 April 2018.

BUSINESS

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Projects on hand as at the Latest Practicable Date

As at the Latest Practicable Date, we had a total of 11 projects on hand, which represent

contracts for work awarded to us but had not yet been started with a total contract value of

approximately RMB859.8 million. The table below sets out the information of our major

projects on hand as at the Latest Practicable Date with each project’s contract value exceeding

RMB50 million:

Contract name

Major types

of work

Expected

commencement date

Contract value(1)

(RMB in million)

Expected revenue

contribution for

the years ending

31 December

2018 and 2019

(approximately)


Infrastructure

Supporting Project in

the Southern Part of

the Coastal Middle

Line of Binhai New

Area Fenghua

Economic

Development Zone

Port infrastructure

(others)

November 2018 260 118.2/118.2 Fenghua, Zhejiang

province, PRC

Subcontractor

Jiangsu Taizhou Port,

Jingjiang Port Phase

1 Reconstruction

Project

Port infrastructure

(general wharf)

November 2018 166 18.2/132.7 Taizhou,

Jiangsu province,

PRC

Main contractor

No. 1 Container

Terminal Construction

Project in the

Southern Part of a

Jetty in the Dongying

Port Area

Port infrastructure

(specialised

wharf)

November 2018 139.6 50.9/75.9 Dongying,

Shandong

province, PRC

Main contractor

No. 1 Liquid Bulk Berth

Wharf Project in the

Northern Part of a

Jetty in the Dongying

Port Area

Port infrastructure

(specialised

wharf)

November 2018 107.6 35.5/62.3 Dongying,

Shandong

province, PRC

Main contractor

Total: 673.1 222.8/389.1

BUSINESS

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Note:

1. As at the Latest Practicable Date, we had seven projects on hand with each project’s contract value belowRMB50 million. The total contract value of these seven projects on hand was approximately RMB186.6 million.The total expected revenue contribution of these seven projects on hand for the eight months ending 31December 2018 and the year ending 31 December 2019 was approximately RMB90.8 million and RMB78.9million, respectively.

Backlog of our projects during the Track Record Period

Backlog represents our estimate of the contract value of work that remains to be

completed as at a certain date. The contract value of a project represents the amount that we

expect to receive under the terms of the contract if the contract is performed in accordance

with its terms. Backlog is not a measure defined by generally accepted accounting principles,

and our methodology for determining backlog may not be comparable to the methodology used

by other companies in determining their backlog. Backlog may not be indicative of our future

operating results. Not all of our revenue is recorded in backlog for a variety of reasons,

including the fact that some projects begin and end within a short-term period. Revenue of

certain contracts may also be different from its original contract value as the revenue received

by us from our customers are only subject to the actual quantities of work and/or services

completed by us based on the pre-agreed contract unit price for each of our work and/or

service items specified in the contracts. Please also refer to the section headed “Risk Factors

– Risks relating to our business – The amount of revenue that we are able to derive from a

project may be higher or lower than the original contract value and the recoverability of our

contract assets may also affect our results of operation, liquidity and financial position” in this

document for more detail.

BUSINESS

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The table below sets out the rolling of contract sum of our projects during the TrackRecord Period and as at the Latest Practicable Date and aggregate value of projects in ourbacklog as at the dates indicated:

Number ofcontracts

Originalcontract

sum(RMB inmillion)

Aggregatevalue of

projects inour

backlog(RMB inmillion)

As at 31 December 2014Existing contracts 56 2,940.6 –

During the financial year ended31 December 2015

New contracts awarded 39 992.8 –Contracts completed 58 (1,138.5) –

As at 31 December 2015Existing contracts 37 2,794.9 1,424.8


New contracts awarded 23 1,211.4 –Contracts completed 39 (1,163.3) –

As at 31 December 2016Existing contracts 21 2,843 1,076.1


New contracts awarded 24 1,250.2 –Contracts completed 27 (1,736.2) –

As at 31 December 2017Existing contracts 18 2,356.9 1,124.1

During the four months period ended30 April 2018

New contracts awarded 9 418 –Contracts completed nil nil –

As at 30 April 2018Existing contracts 27 2,774.9 1,017.3

From 1 May 2018 to the Latest PracticableDate

New contracts awarded 23 1,323.7 –Contracts completed 2 (17.4) –

As at the Latest Practicable DateExisting contracts 48 4,081.2 –

BUSINESS

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Notes:

1. Aggregate value of projects in our backlog is calculated by total contract sum of our projects in progress andprojects on hand minus the corresponding value for the work and/or services performed and certified by ourcustomers of such projects in progress.

2. The aggregate value of projects in our backlog as at the Latest Practicable Date is not available as most of ourport and waterway engineering work and/or services done since August 2018 to the Latest Practicable Datehave not been submitted and/or certified by our customers.

OUR CORE BUSINESS SEGMENTS

The below sets out a brief description of our work and services provided under our corebusiness segments and their major operating procedures:

Port infrastructure

A port generally refers to the transportation hub that is equipped with the relevantland-sea joint transportation facilities where ships can navigate safely and park. Portinfrastructure refers to the overall engineering technology for the construction of variousrequisite facilities for the ports, including port site selection, engineering plan and design, aswell as the construction of various facilities, such as hydraulic structures, loading facilities,mooring buoy and beacons.

Port infrastructure is our largest business segment. For the three years ended 31December 2015, 2016 and 2017 and the four months ended 30 April 2018, revenue generatedfrom our port infrastructure business segment amounted to approximately RMB931.4 million,RMB925.5 million, RMB1,362.3 million and RMB264.2 million, representing approximately82.8%, 73.2%, 96.5% and 98.4% of our total revenue for the same period, respectively. Weprimarily focus on the construction of port hydraulic structures, in particular, wharfconstruction. Further, according to Frost & Sullivan, wharfs can be divided into general wharfsand specialised wharfs by its functionality. General wharfs refer to wharfs in which variouskinds of cargos containing normal goods can be loaded and unloaded. Specialised wharfs aretypically designed and tailor-made to facilitate the handling of certain kinds of cargoscontaining specified goods, such as coal, minerals, oil, liquefied petroleum gas and naturalgas, or for the specified uses, such as fishing wharfs, container wharfs and car/passenger ferrywharfs. Please refer to the section headed “Industry Overview – The port, waterway andmarine engineering market in the PRC – Future development – Key drivers” in this documentfor more details of general wharfs and specialised wharfs. As specialised wharfs are typicallyconstructed by enterprises for their own specific industrial needs, project owners typicallyprefer engaging contractors/subcontractors that have relevant experience in constructingspecialised wharfs and are able to work more effectively and efficiently in terms of timing andcosts and to flexibly adapt to the changes of project schedules and scope of work. During theTrack Record Period and up to the Latest Practicable Date, we had successfully completed 58specialised wharf projects among all of our 108 completed port infrastructure projects. As atthe Latest Practicable Date, we had nine general wharf projects and 21 specialised wharfprojects for our projects in progress, and three general wharf projects and four specialisedwharf projects for our projects on hand. During the Track Record Period, we also conducted asmall portion of other port infrastructure work, such as breakwater and revetment constructionand land yard construction.

BUSINESS

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As we possess the first-grade general contractor qualification which enables us to act asthe main contractor in a project, we are not only eligible to undertake port infrastructureprojects where the construction locations are along China’s inland rivers and coastal sea inLiaoning province in the northeast China to Hainan Island in the southern China, but also onboth sides of the inland waterways of Yangtze River and every main coastal harbournationwide. Since 2016, we have also expanded our business operation into the portinfrastructure market in Southeast Asia, including Brunei and Indonesia. During the TrackRecord Period, in Southeast Asia, we had only conducted port infrastructure work and/orservices. For the two years ended 31 December 2016 and 2017 and the four months ended 30April 2018, our revenue generated from our port infrastructure business in Southeast Asiaamounted to approximately RMB92.2 million, RMB443.5 million and RMB174.4 million,representing approximately 7.3%, 31.4% and 64.9% of our total revenue for the same period,respectively.

Wharf construction

Wharfs are hydraulic structures and main component of ports where ships can park, loadand unload cargos as well as pick up and drop off passengers. Wharf construction has beenour main business focus since our establishment. Through years of operation, we not onlypossess a comprehensive set of technology guidelines on wharf construction, but alsoestablished our own code of conduct with regard to the safety, environmental and other keyissues in relation to the wharf construction, aiming to comply with the increasingly stringentnational requirements in relation to the environment protection and production safety. Apartfrom that we have obtained the ISO9001 and ISO14000 accreditations, which are a set ofstandards and guidelines relating to quality management systems and environmentmanagement systems, our customers also actively engage us to participate in projects that setstrict standards on health, safety and environment management system.

Wharf can be categorised by structure as high-pile wharf, sheet-pile wharf and gravitywharf. While we have the expertise and technology capabilities to construct all these types ofwharfs, we were primarily engaged in the construction of high-pile wharfs during the TrackRecord Period.

High-pile wharf

High-pile wharf is the most common wharf structure, which transfers the load of thewharf’s upper part to the bearing stratum of the deep foundation through the foundation piles.High-pile wharf is suitable for grounds with thicker soft soil. The lower part of the foundationpile is piled into the soil floor under the water and the upper part stays above the soil surface.The high-pile wharf belongs to an open structure which the waves and currents can pass underthe surface of the wharf. High-pile wharf can be further divided into continuous slab connectionhigh-pile wharf and breasting dolphin high-pile wharf according to its layout. Continuous slabconnection high-pile wharf can then be divided into full-framing type and approach bridge typebased on the connection method to the shore. High-pile wharf is mainly composed offoundation pile, superstructure, shore connection structure, bank slope and wharf facilities.Types of foundation pile primarily include pre-stressed concrete square pile, pre-stressedconcrete pipe pile, steel pipe pile, bored pile and socketed pile. Types of superstructureinclude beam slab superstructure, flat slab superstructure, truss superstructure and breastingdolphin structure.

BUSINESS

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The key construction procedure for a high-pile wharf includes (i) generally conductingunderwater dredging in the wharf area so as to ensure that there is enough draught for thepiling barges and the water in such area is deep enough for vessel parking upon completion ofthe construction; (ii) conducting pile sinking on land or on water. For those shoal pilefoundations on the land along the coast without enough water depth, we conduct land piling.For those maritime/water pile foundations which are far away from the coast, we conduct pilesinking using piling barges; (iii) conducting on-site construction of pile caps or bottom rails onthe pile foundations so that the pile foundations are firmly interlinked with each other to bearthe load from the top; (iv) installing the prefabricated longitudinal beams onto the beams,which are generally conducted by floating cranes; (v) performing on-site construction of theupper beams and the concrete surface of the wharf; and (vi) completing the installation ofwharf facilities, such as rubber fenders and bollards.

We set out below the key procedure for our construction of a high-pile wharf:

Pile

prefabrication

Stringer

prefabrication

Wharf surface

layer construction

Underwater

dredging

Pile foundation

engineering

Lower beam

construction

Ancillary facility

construction

Stringer

installation

Upper beam

construction

Sheet-pile wharf

Sheet-pile wharf is an upright wall composed of sheet piles that are inserted into a certaindepth of the foundation by piling. The upper part of the wall is generally anchored by ananchorage structure, and the sheet piles and anchorage devices are applied to withstand thelateral pressure resulting from the ground load and the wall filling. The sheet-pile wharf has asimple structure, which can be widely used and quickly constructed with relatively littlematerials and construction costs, unless the foundation is extremely hard or soft. However, thestructural integrity and durability of sheet-pile wharf are quite poor. In addition, as the sheetpiles are thin-walled with limited bending resistance, sheet-piling structure is only suitable forsmall and medium sized wharf. The main components of the sheet-piling structure includesheet-pile wall, tie rod, anchorage structure, guide beam, cap beam and wharf facilities. Thekey construction procedure for a sheet-pile wharf includes prefabrication and construction ofsheet piles, prefabrication and installation of anchorage structures, fabrication and installationof guide beam, processing and installation of tie rods, on-site casting of cap beams, wallbackfilling and dredging in the port basin in front of the walls.

Gravity wharf

Gravity wharf is mainly composed of base, wall, wall backfill and auxiliary wharf facilities,which relies on the structure’s own weight and the weight of landfilling materials within thestructure to maintain stability. Gravity wharf is solid and durable and is easily restored afterbeing damaged, which is suitable for solid ground foundation. Gravity wharf can be furtherdivided into whole masonry gravity type and prefabricated gravity type. The key constructionprocedure for a gravity wharf includes foundation excavation, stone-throwing, tamping,levelling, wall manufacturing and installation and installation of superstructure and auxiliaryfacilities.

BUSINESS

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Our other port infrastructure work

During the Track Record Period, we had also conducted a small portion of other port

infrastructure work, such as breakwater and revetment construction and lard yard

construction. Our revenue generated from such port infrastructure work amounted to

approximately RMB20.9 million, RMB3.1 million, RMB147 million and RMB120.5 million for the

three years ended 31 December 2015, 2016 and 2017 and four months ended 30 April 2018,

respectively, representing approximately 1.9%, 0.3%, 10.4% and 44.9% of our total revenue

for the same period, respectively. Our revenue generated from our other port infrastructure

work substantially increased for the year ended 31 December 2017 and the four months ended

30 April 2018, primarily attributable to our revenue recognised for one of our land yard

construction projects in Brunei, namely, Brunel Concrete Engineering Project.

Breakwaters are hydraulic structures constructed on coasts for the purpose of coastal

management or to protect an anchorage from the effects of both weather and longshore drift.

Breakwaters reduce the intensity of wave action in inshore waters and thereby reduce coastal

erosion or provide safe harbourage with a stable water surface. Breakwater structures are

designed to absorb the energy of the waves that hit it, either by using mass or by using a

revetment slope. Revetments are enforcement structures built on the initial coastal slopes for

the purpose of protecting the coastal slopes against wave flow, sand and underground water

and maintaining stable shoreline. In marine engineering, a revetment is a land backed

structure whilst a breakwater is a sea backed structure. Breakwaters can be generally

categorised into various types depending on their section condition and effects of the wave,

including inclined breakwaters, upright breakwaters, composite breakwaters, permeable

breakwaters and floating breakwaters.

Land yard is located in the land area behind the port and serves as an ancillary facility for

the port. The main purpose of land yard is to provide a platform when unloading the cargo and

goods from the ships, which plays a role in custody and turnover of the cargo in order to speed

up the ship loading and unloading operations. Depending on the functionality, land yard can be

generally categorised into container yard, general yard and bulk cargo yard.

Waterway engineering

Waterway engineering is our other business segment. For the three years ended 31

December 2015, 2016 and 2017 and the four months ended 30 April 2018, our revenue derived

from our waterway engineering business segment amounted to approximately RMB193.3

million, RMB338.3 million, RMB49.7 million and RMB4.4 million, respectively, representing

approximately 17.2%, 26.8%, 3.5% and 1.6% of our total revenue for the same period,

respectively. During the Track Record Period, we primarily focused on waterway dredging and

improvement and land reclamation work. According to Frost & Sullivan, due to the increasing

needs of waterway dredging and land reclamation as a result of the continuous expansion of

the scale and size of the coastal cities, the maintenance needs for inland river channel and the

needs to improve waterway, lakes and eco-environment. We believe that the waterway

engineering market will continue to grow in the near future.

BUSINESS

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Waterway dredging and improvement

Dredging is the removal of sediments and debris from the bottom of lakes, rivers,

harbours and other water bodies within specified scope and depth. Dredging is a necessary

routine for developing, improving and maintaining the waterway and port water areas because

sedimentation, which is the natural process of sand and silt washing downstream, gradually

fills channels and harbours. Waterway dredging is widely used in (i) excavating new

waterways, ports and canals; (ii) deepening, widening and clearing current waterways and

ports; (iii) dredging the river waterways, trenches, and desilt the reservoirs; (iv) excavating the

foundation pits for hydraulic structures such as ports, shipyards and ship locks; and (v)

clearing and removing the underwater obstacles.

During the process of waterway dredging, we need to implement the waterway channel

midline, determine the dredging channel dimensions, and choose the dredgers and the

disposal method of sediments and debris. We take into consideration the hydrodynamic

conditions and the natural evolutionary trends when implementing the waterway axis for a

convenient and safe waterway with a lower amount of siltation. In determining the dredging

channel dimensions, we also need to ensure the safe sailing while controlling the amount of

siltation. The choice of dredger boats is mainly determined by the properties of the dredged

sediments, and the meteorological, hydrological and geographical conditions of the

construction area. The disposal methods of sediments can be generally divided into two

categories, which are dumping the sediments in the water or transferring the sediments to

land.

Land reclamation

Land reclamation is the process of creating new land from ocean, riverbeds or lakebeds

with suitable landfilling materials, such as sand, rocks, soil and cement, so that development

or construction of new buildings can take place on such new land. Sand is the predominant

material used in our land reclamation projects. Ground treatment of the seabed is normally

required in land reclamation projects to improve the load capacity of the seabed as seabed

often has a mud layer which cannot support any significant weight and any landfilling materials

piled onto such mud layer will normally sink beneath it over time. Land reclamation works

involve the construction of seawalls to fence off the reclamation area or other areas to be

protected from the sea. The fenced area is then filled with large amounts of marine sand, rock

and other landfilling materials. Earth-moving machinery are then deployed to level the

reclaimed land.

BUSINESS

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OUR BUSINESS OPERATION

The diagram below sets out our key operating procedures for a project:

Tender

announcement

Assessing the tender

Preparing tender document,

determining tender price and submitting tender

Awarding and signing the contract

Completion of project and

settlement of payment

Final inspection by customer

and give handover acceptance

certification

Providing the warranty during

the defect liability period and

receiving the retention money

after one to two years

Preparing project plans

and set up project team

Purchasing

raw materials

Dispatch of vessels,

construction equipment,

employees and labours

Communicating

with and receiving

feedback from

customer

Engaging

subcontractorsPurchasing insurance

Reporting work progress and submitting work-in-progress

application to customer on a monthly basis; customer

conducting inspection and verification of our monthly

work-in-progress application and arranging payment

Invitation for

tender

Ide

ntify

ing

po

ten

tial

pro

ject

Te

nd

er

su

bm

issio

nP

roje

ct e

xe

cu

tion

Pro

ject c

om

ple

tion

BUSINESS

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Identifying potential projects

We identify potential projects and business opportunities from various sources, includingopen tender notices or invitations published online by Chinese state-owned enterprises andpublic and private companies, which are typically project owners, and announcements madethrough the industrial news. We also gain new business opportunities in the PRC andSoutheast Asia through our existing clients due to our extensive industrial experience andyears of cooperation with them.

Tendering for projects

Assessing tenders

After identifying the potential projects, our marketing department will conduct the initialassessment on the prequalification requirements, which are usually set out in the tenderdocuments. These prequalification requirements typically include the scope of the tender,details of work and services, duration of the project, construction technology and qualityrequirement, qualification and liability of the bidder. We will commence to prepare for tenderonce our marketing department completes the assessment and decides that we havepreliminary met the prequalification requirements, and our management also decides toproceed.

Preparing for tenders

Our marketing department, with the assistance of our other operating departments isresponsible for preparing the tender. During the preparation process, all relevant operatingdepartments will discuss in detail the scope of work, technical and quality specification, designand drawings, raw materials and other requirements. We will conduct site visits to projectlocations to assess the weather and construction conditions to evaluate how our work shouldbe carried out. We will also assess our own capacity of vessels, construction equipment andlabour need to be involved for our potential projects. Further, we will assess our costs relatingto deploying our project management team and employing local workers for our overseasprojects. Before we decide whether or not we will submit a tender for a project, we will alsoassess our estimate profit margin.

Determining tender prices

We believe that our pricing is crucial to our prospects of winning the project as well as ourprofitability for a project. When we decide to submit tender for a project, we will seekquotations from various suppliers and/or subcontractors to assist us in estimating the projectcosts. When determining our pricing, we consider factors such as, the geographical location ofthe projects, the scope and quantity of work and/or services to be provided, the quantity andcosts of raw materials and subcontracting services, the vessels and construction equipment tobe used, and labour we required to complete the project. Furthermore, the weather conditionwill also be considered by us since the majority of our port and waterway engineering work andservices are performed above and/or under the water, which are prone to adverse weather andseasonal conditions and may directly or indirectly affect our pricing.

BUSINESS

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Submitting tenders

Our marketing department will prepare and submit the tender in accordance with the

requirements set out in the tender documents. We may be invited to attend a post-tender

meeting with our potential customer before the result is announced to further negotiate certain

commercial terms.

Award and signing of contracts

Once our tender is accepted by our potential customer, they will ask us to enter into formal

agreement with them by sending us a letter of acceptance. The letter of acceptance is a legally

binding document between our customer and us, pursuant to which, we need to comply with all

requirements in the tender documents. Once agreed, we will sign the formal contract with our

customer.

The table below sets out the number of projects we had tendered for and the number of

projects we had been awarded during the Track Record Period:

PRC Brunei Indonesia

Total number of projects tendered for 266 8 5Total number or projects awarded 53 6 3Success rate (approximately %) 19 75 60

After the Track Record Period and up to the Latest Practicable Date, we had submitted 26

tenders or quotations for port and waterway engineering projects in the PRC and our tender

success rate was approximately 34.6%.

Execution of projects

We prepare execution plans based on project requirements. We also review and update

our execution plans from time to time during the course of the project, which includes:

• Project organisation and design – organise project meeting with senior management

and project managers to set up a project team which consists of our core senior

management team and key responsible persons from each functional department as

the first tier and project managers and working personnel designated for each of our

projects as second tier; determine the execution plan according to the project

background and formulate specific management mode and process, construction

technologies and quality requirement for each procedure of the project; and

regularly communicate with customers and discuss and receive feedbacks on

relevant issues;

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• Construction planning – make project construction plan according to the project

schedule and construction requirements; set up the quality standard; determine the

main port and waterway engineering technologies and vessels and construction

equipment to be used; determine procurement plan including raw materials and

subcontracting services; and other pre-construction arrangements;

• Formation of project facilities – set up construction and other living facilities;

dispatch vessels, construction equipment, employees and labours to the

construction site for the commencement of project; and studying the construction

drawings and specifications;

• Disclosure of techniques, quality and safety for sub-divisional work – disclose in

writing for each sub-divisional work to ensure that the construction workers clearly

understand the requirements for construction technologies, standard and quality,

make real-time monitoring on the process and construction quality by means of

undisclosed inspection and acceptance of project and daily supervision and

examination; and

• Working progress reporting – report working progress monthly by project team to the

supervisors, and submit monthly work-in-progress applications to customers for

inspection and certification and monthly payment.

Procuring raw materials and subcontracting services

We purchase raw materials from time to time according to our project progress. We also

subcontract part of our raw material procurement, leasing of our vessels and construction

equipment, such as floating pile barge, installation vessel and dredger, and various labour

intensive construction and ancillary work, such as concrete pouring and assembling

reinforcement, to third-party subcontractors. For more details of our procurement of raw

materials and subcontracting services, please refer to the section headed “Business –

Procurement” in this document.

Deployment of vessels, construction equipment and labour to carry out our port and

waterway engineering work

The port and waterway engineering work and services carried out by us require the use

of specifically designed vessels and construction equipment, details of which are set out in the

section headed “Business – Vessels and construction equipment to carry out our port and

waterway engineering work and services” in this document. For our overseas projects, we

typically designate a project team with specific professional and management skills to various

overseas project sites and conduct some local procurement and hiring if needed. We believe

that such management structure will allow us to manage and conduct our overseas projects in

a centralised and effective manner.

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Payment settlement and completion of projects

During the course of our projects, we typically submit work-in-progress applications to our

customers on a monthly basis, which generally include (i) our estimated value of work and/or

services completed during the month between our previous and current monthly cut-off dates;

and (ii) proposed payment amount to be settled by our customers based on such estimated

value of work and/or services completed and calculated at certain percentage in accordance

with the stipulated terms and conditions of the respective contracts. The monthly cut-off dates

of such work-in-progress applications vary from project to project and are also typically

specified in the contracts. Typically, the authorised personnel employed by our customers will

review our work-in-progress applications, and inspect and certify the value of the work and/or

services completed by us during such month. Once our customers agree with our work-in-

progress applications, they will arrange payment in accordance with the payment amount in

our work-in-progress applications within a specified period of time according to the terms

specified in the contracts.

During the Track Record Period, ageing of our trade and retention receivables was

relatively long, primarily as a result of our longer receivable collection period due to us having

a large number of diversified customers, majority of which are subsidiaries or affiliates of

Chinese state-owned enterprises and public and/or private companies which are also the key

players in the PRC port, waterway and marine engineering industry. As these customers

typically have solid background and financial conditions, good reputation, credibility and

payment records and did not encounter any financial difficulties resulting in failed payment

obligations, our Directors believe that no impairment allowance is needed in respect of our

trade and retention receivables from these customers. For more details of our trade and

retention receivables, please refer to the section headed “Financial Information – Certain

items of combined statements of financial position – Trade and other receivables” in this

document.

After we have substantially completed all our contracted work and/or services, we and our

customers will conduct a final inspection and certification of the project. Thereafter, our

customers will generally notify us in writing to confirm the project completion date and the

commencement date for the defect liability period, which typically lasts for one to two years.

Generally, our customers will have settled the majority of our payment, including our

performance deposit, upon completion of the projects according to the terms specified in the

contracts, and our customers will release our retention money, which amounted to

approximately 5% to 10% of our total projects’ contract value, upon expiry of the defect liability

period. During the defect liability period, we are responsible for rectifying defects in relation to

our work and/or services performed. During the Track Record Period and up to the Latest

Practicable Date, we had not experienced any material defects claimed by our customers in

relation to our port and waterway engineering work and/or services completed.

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OUR BUSINESS IN SOUTHEAST ASIA

In 2016, we set foot in Southeast Asia by expanding our business in Brunei andIndonesia, following China’s Belt and Road Initiative. During the Track Record Period, we hadonly conducted port infrastructure work/or services for our customers in Southeast Asia. To thebest knowledge of our Directors, our existing customers in Southeast Asia are the overseasaffiliates of some of our major customers in the PRC, which are the major Chinese state-ownedenterprises and public and private companies. Our business operation in Southeast Asia issimilar to our business operation in the PRC. For the three years ended 31 December 2015,2016 and 2017 and the four months ended 30 April 2018, our revenue generated from ourbusiness operation in Southeast Asia amounted to nil, approximately RMB92.2 million,RMB443.5 million and RMB174.4 million, respectively, representing nil, approximately 7.3%,31.4% and 64.9% of our total revenue for the same period, respectively. For our major projectsin Brunei and Indonesia, please refer to section headed “Business – Business overview – Ourmajor port infrastructure and waterway engineering projects” in this document.

In order to quickly establish our presence in Southeast Asia and to comply with allrelevant local laws and regulations, we incorporated Benteng Brunei and Benteng Indonesiaby entering into trust arrangements and Contractual Arrangements with our local partner,respectively. For further details, please refer to the section headed “Trust and ContractualArrangements” in this document.

OUR CUSTOMERS

Our customers mainly comprise Chinese state-owned enterprises and public and privatecompanies, which are typically project owners. Our customers engage us to conduct port andwaterway engineering work and/or services on a project-by-project basis and generally settleour payment on a monthly basis based on our actual quantities of work completed andaccording to the terms specified in the contracts.

We believe that our proven track record and extensive experience have enabled us tobuild a strong reputation in the port, waterway and marine engineering industries in the PRCand Southeast Asia. Through years of operation, we have established stable businessrelationship with various major Chinese state-owned enterprises and public and privatecompanies, including the largest port infrastructure company in the PRC according to Frost &Sullivan, which was also one of our top five customers during the Track Record Period. As at30 April 2018, we had 294 customers in the PRC and three major customers in Southeast Asia,and we had on average six years of business relationship with all of our top five customers inthe PRC. Some of these customers have given us recurring work and also provided us withopportunities to tender for or participate in large-scale port infrastructure projects in theSoutheast Asia. To the best knowledge of our Directors, the majority of our customers inSoutheast Asia are the overseas affiliates of some of our customers in the PRC, which are themajor Chinese state-owned enterprises and public and private companies. During the years,we have successfully obtained various certifications and awards from these customers whichindicate the high quality of our port and waterway engineering work and services. Please referto the section headed “Business – Awards and recognitions” in this document for more detailsof our awards and recognition received.

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Our customers typically impose stringent requirements and standards for our port andwaterway engineering work and services. In order to maintain stable business relationshipwith these customers, we have implemented a customer-oriented strategy and madecontinuous efforts to promote their customers’ experience with us. We have specific personnelassigned to each of our key customers in order to regularly communicate with them andpromptly respond to their needs and requests. We also have designated quality control staffstationed in every construction site to assist issues encountered during the constructionprocess. Moreover, our core management team will also personally participate in clientmeetings and discussions to ensure that we provide high quality of work and services to ourkey customers. We believe that our fast-response and customer-oriented service mechanismand strong technical know-how and capabilities have helped us to build and maintain areputable and loyal customer base, gain deep insight of the industry and capture the marketopportunities, which have distinguished us from our competitors and contributed to the growthof our business.

The terms of our contracts are typically adhere to the terms specified in our customers’tender documents. The below sets out the material terms of our contracts entered into with ourcustomers:

• Scope of work – Our scope of work and services vary from contracts to contracts;

• Contract unit price – The unit price of each of our work and/or service items to beperformed under the projects are specified in the contracts which have been agreedby our customers;

• Duration of project – the duration of projects vary from contracts to contracts;

• Performance deposits – we may be required to pay performance deposits for certainprojects of approximately 5% to 10% of the total projects’ contract value, which willbe returned to us upon the completion of the projects;

• Advanced payment – our customers may pay us non-refundable advance paymentfor certain projects of approximately 5% to 10% of the projects’ contract value whenwe commence the projects for us to prepare the relevant raw materials and othernecessary construction facilities;

• Payment terms – We are required to submit work-in-progress applications to ourcustomers on a monthly basis, which generally include (i) our estimated value ofwork and/or services completed during the month between our previous and currentmonthly cut-off dates; and (ii) proposed payment amount to be settled by ourcustomers based on such estimated value of work and/or services completed andcalculated at certain percentage in accordance with the stipulated terms andconditions of the respective contracts. The monthly cut-off dates of such work-in-progress applications vary from project to project and are also typically specified inthe contracts. Once our customers agree with our work-in-progress applicationsafter their inspection and certification, they shall arrange payment in accordancewith the payment amount in our work-in-progress applications within a specifiedperiod of time according to the terms specified in the contracts;

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• Defect liability period – The defect liability period provided by us is normally one totwo years after completion of the projects. During the defect liability period, we areresponsible for rectifying defects in relation to our work or services performed; and

• Retention money – Our customers generally withhold about 5% to 10% of the totalprojects’ contract value as retention money, which will be released to us upon expiryof the defect liability period.

Pricing

We generally provide our price estimate to our customers during the tender process andmay engage in further price negotiations with our customers if they have been awarded theprojects. Our price is determined primarily based on a number of factors, including (i) pricingguidance issued by supervisory bodies and industry committees (if applicable); (ii) theavailability and costs of raw materials and subcontracting, labour and vessels and constructionequipment to be used ; (iii) project schedule; (iv) the complexity and scale of the project; (v)geographical location and seasonal and weather conditions of the project sites; (vi) the amountof performance deposits to be paid and the amount of advance payments to be received; and(vii) contractual risks. After negotiation, the unit price of each of our work and/or service itemsto be performed under the projects are specified in the contracts which have been agreed byboth of us and our customers. We are typically allowed to adjust our contract unit prices if weexperience major raw material price fluctuation that is generally determined by the relevantraw material market.

The final settlement value of our project may be different from its original contract valueas the final payment received by us from our customers are only subject to the actual quantitiesof work and/or services completed by us under such projects based on the pre-agreed contractunit price for each of our work and/or service items specified in the contracts. All of our workand/or services performed under the contracts by us are inspected and certified by ourcustomers accordingly.

Credit terms with our customers

We are required to submit work-in-progress applications to our customers on a monthlybasis, which generally include (i) our estimated value of work and/or services completedduring the month between our previous and current monthly cut-off dates; and (ii) proposedpayment amount to be settled by our customers based on such estimated value of work and/orservices completed and calculated at certain percentage in accordance with the stipulatedterms and conditions of the respective contracts. The monthly cut-off dates of such work-in-progress applications vary from project to project and are also typically specified in thecontracts. Once our customers agree with our work-in-progress applications after theirinspection and certification, they will arrange payment in accordance with the payment amountin our work-in-progress applications within a specified period of time according to the termsspecified in the contracts. Upon completion of our projects, our customers typically withholdapproximately 5% to 10% of the total projects’ contract value as retention money, which willrelease to us upon expiry of the defect liability period that normally lasts for one to two yearsafter completion of the projects.

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During the Track Record Period, the ageing of our trade and retention receivables wasrelatively longer, primarily as a result of our relatively longer receivable collection period dueto us having a diversified group of customers, majority of which are subsidiaries or affiliates ofChinese state-owned enterprises and public and/or private companies which are also the keyplayers in the PRC port, waterway and marine engineering industry. These customers typicallyhave solid background and financial conditions, good reputation, credibility and paymentrecords and did not encounter any financial difficulties resulting in failed payment obligations.As confirmed by our Industry Expert, Frost & Sullivan, it is the industrial norm for non-state-owned companies engaged in our industry to have a relatively longer receivable collectionperiod. For more details of our trade and retention receivables, please refer to the sectionheaded “Financial Information – Certain items of combined statements of financial position –Trade and other receivables” in this document.

During the Track Record Period, our customers typically settled our payment in Renminbifor our projects in the PRC and settled our payment in US dollars, RMB and BND for ourprojects in Brunei. For our only project in Indonesia during the Track Record Period, ourcustomer settled our payment in IDR using the spot exchange rate of RMB against IDR.

We currently do not have a hedging policy in place to minimise our foreign exchangeexposure. Nevertheless, our management has and will continue to closely monitor our foreignexchange exposure and take appropriate actions to mitigate our exposure to foreign exchangerisks by, for example, (i) using spot rate or locked exchange rate of our principal currency, i.e.RMB, against IDR based on our contracts and agreed payment applications; and (ii) settlingpayments with our suppliers and any related operating expenses in Indonesia using IDR wherepossible. Our Directors will also consider hedging significant foreign exchange exposure,should the need arise.

Top five customers

For the three years ended 31 December 2015, 2016 and 2017 and the four months ended30 April 2018, our revenue generated from our top five customers amounted to approximatelyRMB574.1 million, RMB649.4 million, RMB931.2 million and RMB179.6 million, representingapproximately 51%, 51.4%, 65.9% and 66.9% of our total revenue for the same period,respectively, while our revenue generated from our largest customer amounted toapproximately RMB232.7 million, RMB206.6 million, RMB307.6 million and RMB46.6 million,respectively, representing approximately 20.7%, 16.3%, 21.8% and 17.4% of our total revenuefor the same period, respectively.

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The tables below set out the basic information of our top five customers during the TrackRecord Period:

Year ended 31 December 2015

Name of customer

Major work or servicesprovided tothe customer

Approximateamount of

revenueattributable to the

customer(RMB in million)

Approximate %of our total

revenue

Backgroundof thecustomer

Principal businessof the customer/primary location

Approximateyear(s) ofbusinessrelationshipas at31 December2015

Customer A Port infrastructure 232.7 20.7% State-ownedenterprise

Wharf construction andoperation/PRC

3 years

Customer B(1) Port infrastructure 154 13.7% State-ownedenterprise

Port infrastructure, waterwayengineering, portequipment installation andprefabricatedconcrete/PRC

15 years

Customer C Port infrastructure 64.5 5.7% Governmentbureau

Business districtmanagement/PRC

4 years

Customer D Port infrastructure 61.6 5.5% Governmentbureau

General transportationadministration/PRC

1 year

Customer E Waterway engineering 61.3 5.5% Privatecompany

Construction developmentand operating managementof waterway/PRC

3 years

Note:

1. Customer B is the largest port infrastructure company in the PRC. During the Track Record Period, weconducted various port and waterway engineering work and/services for different subsidiaries and/orassociates of Customer B. For illustration purpose, the above table shows the aggregate percentage of ourtotal revenue derived from Customer B. Customers B was also one of our top five subcontractors for the yearended 31 December 2015, services procured from which accounted for 13.4% of our total subcontracting costsfor the year ended 31 December 2015.

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Name of customer

Major work or services

provided

to the customer

Approximate

amount of

revenue

attributable to the

customer

(RMB in million)

Approximate %

of our total

revenue

Background

of the

customer

Principal business

of the customer/

primary location

Approximate

year(s) of

business

relationship

as at

31 December

2016

Customer F Waterway engineering 206.6 16.3% Private

company

Port infrastructure, waterway

and marine

engineering/PRC

1 year

Customer A Port infrastructure 125 9.9% State-owned

enterprise

Wharf construction and

operation/PRC

4 years

Customer B Port infrastructure 121.1 9.6% State-owned

enterprise


engineering, port

equipment installation and

prefabricated

concrete/PRC

16 years

Customer G Port infrastructure 100.9 8% Private

company

Investment and asset

management/PRC

1 year

Customer H Port infrastructure 95.7 7.6% Private

company

Petrochemical engineering

and equity investment

business/Brunei

2 years

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Name of customer

Major work or services

provided to the

customer

Approximate

amount of

revenue

attributable to the

customer

(RMB in million)

Approximate %

of our total

revenue

Background

of the

customer

Principal business

of the customer/

primary location

Approximate

year(s) of

business

relationship

as at

31 December

2017

Customer I Port infrastructure 307.6 21.8% Private

company

Real estate development,

sales and lease/PRC

5 years

Customer H Port infrastructure 241.3 17.1% Private

company

Petrochemical engineering

and equity investment

business/Brunei

3 years

Customer J Port infrastructure 216.4 15.3% Private

company

Construction, development

and operating management

of wharf and its related

ancillary facility/PRC

4 years

Customer B Port infrastructure 98 6.9% State-owned

enterprise


engineering, port

equipment installation and

prefabricated

concrete/PRC

17 years

Customer A Port infrastructure 67.8 4.8% State-owned

enterprise

Wharf construction and

operation/PRC

5 years

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Four months ended 30 April 2018

Name of customer

Major work or servicesprovided to thecustomer


revenueattributable to the

customer(RMB in million)

Approximate% of our total

revenue

Backgroundof thecustomer

Principal businessof the customer/primary location

Approximateyear(s) ofbusinessrelationshipas at30 April2018

Customer B Port infrastructure 46.6 17.4% State-ownedenterprise

Port infrastructure, waterwayengineering, portequipment installation andprefabricatedconcrete/PRC

18 years

Customer H Port infrastructure 42.2 15.7% Privatecompany

Petrochemical engineeringand equity investmentbusiness/Brunei

4 years

Customer K Port infrastructure 39.1 14.6% State-ownedenterprise

Construction ofpetrochemical plant as wellas import and export ofindustrial products/Brunei

1 year

Customer L Port infrastructure 30.2 11.2% State-ownedenterprise

Power engineering designand consultation,construction management,general contracting andequipmentprocurement/Brunei

1 year

Customer M Port infrastructure 21.5 8% State-ownedenterprise

Construction ofpetrochemical plantalongside import andexport of industrialproducts/Brunei

1 year

All of our top five customers during the Track Record Period were Independent ThirdParties. None of our Directors, their close associates or our Shareholders (whom to theknowledge of our Directors own more than 5% of the issued Shares) had any interest in any ofour top five customers during the Track Record Period. One of our top five customers for theyear ended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2018,Customer B, was also one of our top five subcontractors for the year ended 31 December2015. According to Frost & Sullivan, it is the industrial norm and sometimes inevitable to havesome of our customers (including their subsidiaries or affiliates), which are large PRCstate-owned enterprises, to also be our subcontractors for our other different projects as theseenterprises are major market players in the PRC. Our revenue derived from customer B for theyear ended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2018

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represented approximately 13.7%, 9.6%, 6.9% and 17.4% of our total revenue for the same

period, respectively, while our subcontracting cost incurred to Customer B for the years ended

31 December 2015, 2016 and 2017 and the four months ended 30 April 2018 represented

approximately 13.4%, 3.4%, 0.6% and 6% of our total subcontracting costs for such period,

respectively. We subcontracted some of our structural work to customer B.

PROCUREMENT

We purchase raw materials from time to time according to our project progress. We also

subcontract part of our raw material procurement, leasing of our vessels and construction

equipment, and various labour intensive construction and ancillary work to third-party

subcontractors.

Raw materials and our suppliers

Raw materials

The principal raw materials used in our port and waterway engineering projects primarily

include cement, sand and rock, steel, tube piles and others. For the three years ended 31

December 2015, 2016 and 2017 and the four months ended 30 April 2018, our direct raw

materials and consumables used amounted to approximately RMB223.2 million, RMB395.6

million, RMB585.8 million and RMB149.9 million, respectively, representing approximately

22.2%, 35%, 46.8% and 66.3% of our total cost of sales for the same periods, respectively.

Please refer to the section headed “Financial Information – Principal income statement

components – Cost of sales” in this document for more details and also the sensitivity analysis

of our profit before tax in relation to the fluctuation of our raw materials and consumables used

during the Track Record Period.

Our suppliers

We have established stable and/or long-term business relationship with our suppliers in

order to purchase our raw materials at competitive prices. Unless our customers have specific

requirements, we generally purchase our raw materials from the PRC suppliers for both of our

projects in the PRC and Southeast Asia. As at 30 April 2018, we had more than 410 qualified

raw material suppliers. For the three years ended 31 December 2015, 2016 and 2017 and the

four months ended 30 April 2018, purchases from our top five raw material suppliers amounted

to approximately RMB97.5 million, RMB273 million, RMB306.8 million and RMB98.3 million,

representing approximately 43.7%, 69%, 52.4% and 65.6% of our total cost of raw materials

and consumables used for the same period, respectively, while purchase from our largest raw

material supplier amounted to approximately RMB33.7 million, RMB130.9 million, RMB99.4

million and RMB36.8 million, respectively, representing approximately 15.1%, 33.1%, 17%

and 24.6% of our total cost of raw materials and consumables used for the same period,

respectively.

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The tables below set out the basic information of our top five raw material suppliers during

the Track Record Period:


Name of supplier

Major raw materials

procured from the

supplier

Amount of raw

materials and

consumables

used purchased

from the supplier

(RMB in million)

Approximate %

of our total raw

materials and

consumables

used

Background

of the

supplier

Principal business

of the supplier

Approximate

year(s) of

business

relationship

as at

31 December

2015

Watts Gallop Group Tube piles 33.7 15.1% Private

company

Cement and steel

prefabrication

8 years

Supplier A Steel 25.2 11.3% Sole

proprietorship

Sales of building materials 2 years

Supplier B Steel 21.7 9.7% Sole

proprietorship

Wholesale of building

materials

1 year

Supplier C Steel 9.5 4.3% State-owned

enterprise

Sales of metal, rock and

wood

1 year

Supplier D Concrete 7.4 3.3% Private

company

Wholesale of cement and

building materials

2 years


Name of supplier

Major raw materials

procured from the

supplier

Amount of raw

materials and

consumables

used purchased

from the supplier

(RMB in million)

Approximate %

of our total raw

materials and

consumables

used

Background

of the

supplier

Principal business

of the supplier

Approximate

year(s) of

business

relationship

as at

31 December

2016

Supplier E Sand and rock 130.9 33.1% Private

company

Operation of public port

equipment

2 years

Supplier F Steel and

tube piles

55.4 14% Private

company

Sales of building materials 1 year

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Name of supplier

Major raw materials

procured from the

supplier

Amount of raw

materials and

consumables

used purchased

from the supplier

(RMB in million)

Approximate %

of our total raw

materials and

consumables

used

Background

of the

supplier

Principal business

of the supplier

Approximate

year(s) of

business

relationship

as at

31 December

2016

Watts Gallop Group Tube piles and others 42.4 10.7% Private

company

Cement and steel

prefabrication

9 years

Supplier G and

Supplier H(1)

Cement, sand and rock

and others

32.8 8.3% Private

company


Supplier A Steel 11.6 2.9% Sole

proprietorship


Note:

1. Suppliers G and H are controlled by the same person and are our connected persons. The above table showsthe aggregate amount and percentage of our total raw materials and consumables used purchased fromSupplier G and Suppler H. Suppliers G and H ceased to be our connected persons in late 2017.


Name of supplier

Major raw materials

procured from the

supplier

Amount of raw

materials and

consumables

used purchased

from the supplier

(RMB in million)

Approximate %

of our total raw

materials and

consumables

used

Background

of the

supplier

Principal business

of the supplier

Approximate

year(s) of

business

relationship

as at

31 December

2017

Supplier I Steel, tube piles, sand

and others

99.4 17% Private

company

Sales of building and metal

materials

1 year

Watts Gallop Group Tube piles and others 88.6 15.1% Private

company

Cement and steel

prefabrication

10 years

Supplier J Cement 58.5 10% Private

company

Sales of cement and

concrete

1 year

Supplier K Sand and rock 30.5 5.2% Private

company

Sales of furniture and metal

materials

1 year

Supplier L(1) Tube piles 29.9 5.1% Private

company

Sales of building and metal

materials

1 year

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Name of supplier

Major raw materials

procured from the

supplier

Amount of raw

materials and

consumables

used purchased

from the supplier

(RMB in million)

Approximate %

of our total raw

materials and

consumables

used

Background

of the

supplier

Principal business

of the supplier

Approximate

year(s) of

business

relationship

as at

30 April

2018

Supplier J Cement 36.8 24.6% Private

company

Sale of cement and concrete 2 years

Supplier L and

Supplier M(2)

Tube piles, steel and

PHC pipe piles

26.9 17.9% Private

company

Sale of building and metal

materials

2 years

Supplier N Sand and gravel 20.8 13.9% Private

company

Sale and supply of

construction materials and

import and export trade

1 year

Supplier O Sand and gravel 7.5 5% Private

company

Sale and supply of

construction materials and

import and export trade

1 year

Supplier P Sand 6.4 4.2% Private

company

Construction, infrastructure

construction and sales and

supply of building materials

1 year

Notes:

1. Supplier L ceased to be our connected person in late 2017.

2. Supplier L and Supplier M are controlled by the same person. The above table shows the aggregate amountand percentage of our total raw materials and consumables used purchased from Supplier L and Suppler M.

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We generally enter into purchase agreements with our suppliers for each of our raw

material purchases. Set out below are the material terms of our purchase agreements:

• Specification – The purchase agreements typically set out the descriptions, type,

quantity, unit price and total amount of raw materials we required;

• Delivery – Suppliers are required to deliver our required raw materials to locations

designated by us; and

• Payment – Generally, upon receiving our required raw materials and conducting

relevant inspection, we will make payment to our suppliers according the terms

specified in the purchase agreements.

During the Track Record Period, we had procured raw materials, primarily including steel

and PHC tube piles, from Watts Gallop Group and other related parties. As at the Latest

Practicable Date, Watts Gallop Group was owned as to 56% by Mr. Wang and therefore is an

associate of Mr. Wang within the meaning of the Listing Rules. For the three years ended 31

December 2015, 2016 and 2017 and four months ended 30 April 2018, our purchases of raw

materials from Watts Gallop Group amounted to approximately RMB33.7 million, RMB42.4

million, RMB88.6 million and nil, respectively, representing approximately 15.1%, 10.7%,

15.1% and nil of our total cost of raw materials and consumables used for the same period,

respectively, among which, our purchases from the two subsidiaries of Watts Gallop Group will

continue to be our connected persons upon [REDACTED]. For the three years ended 31

December 2015, 2016 and 2017 and the four months ended 30 April 2018, our purchases of

raw materials from these two subsidiaries of Watts Gallop Group amounted to approximately

RMB33.7 million, RMB40.7 million, RMB22.3 million and nil for the same period, respectively,

representing approximately 15.1%, 10.3%, 3.8% and nil of our total cost of raw materials and

consumables used for the same period, respectively. For more details of our purchases of raw

materials from Watts Gallop Group and continuing connected transactions, please refer to the

section headed “Connected Transactions – Continuing connected transaction exempt from

independent shareholders’ approval requirement – Master Procurement Agreement” in this

document.

Save for Watts Gallop Group and Suppliers G, H and L are/were our connected person(s),

all of our top five raw material suppliers during the Track Record Period were Independent

Third Parties. None of our Directors, their close associates or our Shareholders (whom to the

knowledge of our Directors own more than 5% of the issued Shares) had any interest in any of

our top raw material five suppliers during the Track Record Period.

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Subcontracting and our subcontractors

During the Track Record Period, we had also subcontracted part of our raw materialprocurement, leasing of our vessels and construction equipment, such as floating pile barge,installation vessel and dredger, and various labour intensive construction and ancillary work,such as concrete pouring and assembling reinforcement, to third-party subcontractors. For thethree years ended 31 December 2015, 2016 and 2017 and the four months ended 30 April2018, our subcontracting costs amounted to approximately RMB737.4 million, RMB697million, RMB600.8 million and RMB49.7 million, respectively, representing approximately73.4%, 61.6%, 48% and 22% of our total costs of sales for the same period, respectively.Please refer to the section headed “Financial Information – Principal income statementcomponents – Cost of sales” in this document for more details and also the sensitivity analysisof our profit before tax in relation to the fluctuation of our subcontracting costs during the TrackRecord Period.

Our subcontractors

We do not enter into long-term agreements with our subcontractors as we engagedifferent subcontractors depending on our project needs. Similar to our arrangement with ourcustomers, we typically require our subcontractors to submit monthly work-in-progressapplications to us in order to apply for settlement of payment of their work and/or servicescompleted during such month. Once we agree with the work-in-progress applicationssubmitted by our subcontractors after our inspection and certification, we will arrange paymentin respect of the portion of work and/or services completed by them within a specified periodof time according to the terms specified in the subcontracting agreements. We also withholdapproximately 5% to 10% of the projects’ total contract value as retention money, which will bereleased to our subcontractors upon expiry of their defect liability period that normally lasts forone to two years.

We closely supervise the work quality of our subcontractors to ensure their compliancewith our standards and requirements as we are liable to our customers for any defects ordelays in the work performed by our subcontractors. In the event that claimed defects arerelated to the work and/or services performed by our subcontractors, such subcontractors areresponsible for rectifying the defects for our customers and liable for any expenses, costs ordamages incurred by us.

For the three years ended 31 December 2015, 2016 and 2017 and the four months ended30 April 2018, our subcontracting costs to the top five subcontractors amounted toapproximately RMB314.0 million, RMB250.1 million, RMB370.2 million and RMB33.5 million,representing approximately 42.6%, 35.9%, 61.6% and 67.4% of our total subcontracting costsfor the same period, respectively, while the subcontracting cost to our largest subcontractoramounted to approximately RMB98.9 million, RMB62.8 million, RMB137.1 million andRMB15.9 million, respectively, representing approximately 13.4%, 9%, 22.8% and 32% of ourtotal subcontracting costs for the same period, respectively. As at 30 April 2018, we had morethan 160 qualified subcontractors and on average three years of business relationship with ourtop five subcontractors in the PRC.

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The tables below set out the basic information of our top five subcontractors during theTrack Record Period:


Name ofsubcontractor

Major servicesprocuredfrom thesubcontractor


subcontractingcosts incurred to

the subcontractor(RMB in million)

Approximate% of our total

subcontractingcosts

Backgroundof thesubcontractor

Principal businessof the subcontractor

Approximateyear(s) ofbusinessrelationshipas at31 December2015

Subcontractor A(1) Structuralsubcontracting

98.9 13.4% State-ownedenterprise

Port infrastructure, waterwayengineering, portequipment installation andprefabricated concrete

13 years

Subcontractor B Infrastructuresubcontracting

86.2 11.7% Privatecompany

General contractors ofbuilding constructionengineering and municipalengineering

7 years

Subcontractor C Caisson production,Structuralsubcontracting andInfrastructuresubcontracting

62.9 8.5% Privatecompany

Port and marine engineeringconstruction, earth androck engineering and steelstructure work

3 years

Subcontractor D Waterway dredging,under water andstructuralsubcontracting

36.6 5% Privatecompany

Construction engineering,municipal engineering,electromechanicalengineering, decorationengineering andenvironmental engineering

1 year

Subcontractor E Prefabricatedcomponentproduction, labourservice and structuralsubcontracting

29.5 4% Privatecompany

Construction engineering,municipal engineering,hydraulic engineering,earth and rock engineeringand port infrastructure andwaterway engineering

4 years

Note:

1. Subcontractor A is the largest port infrastructure company in the PRC. During the Track Record Period, weprocured various subcontracting services from different subsidiaries and/or associates of Subcontractor A. Forillustration purpose, the above table shows the aggregate percentage of our total subcontracting costsincurred to Subcontractor A for the year ended 31 December 2015. Subcontractor A was also one of our topfive customers during the Track Record Period, revenue attributable to which accounted for 13.7%, 9.6%,6.9% and 17.4% of our total revenue for the three years ended 31 December 2015, 2016 and 2017 and the fourmonths ended 30 April 2018, respectively.

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Name of

subcontractor

Major services

procured

from the

subcontractor

Approximate

amount of

subcontracting

costs incurred to

the subcontractor

(RMB in million)

Approximate

% of our total

subcontracting

costs

Background

of the

subcontractor

Principal business

of the subcontractor

Approximate

year(s) of

business

relationship

as at

31 December

2016

Subcontractor C Caisson production,

Structural

subcontracting and

infrastructure

subcontracting

62.8 9.0% Private

company

Port and marine engineering

construction, earth and

rock engineering and steel

structure work

4 years

Subcontractor F Earth and stone backfill

subcontracting

57.5 8.3% Private

company

Industrial and civil

engineering, municipal

engineering, earth and rock

engineering and decoration

engineering

2 years

Subcontractor G Infrastructure

subcontracting

46.9 6.7% Private

company

Building construction

engineering, hoisting

equipment installation,

earth and rock engineering,

decoration engineering and

infrastructure and

foundation engineering

2 years

Subcontractor E Prefabricated

component

production, labour

service and structural

subcontracting

44.1 6.3% Private

company

Construction engineering,

municipal engineering,

hydraulic engineering,

earth and rock engineering

and port infrastructure and

waterway engineering

5 years

Subcontractor H Hydraulic engineering

subcontracting

38.9 5.6% Private

company

General contractors of

hydraulic and hydroelectric

engineering and port and

waterway engineering

4 years

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Name of

subcontractor

Major services

procured

from the

subcontractor

Approximate

amount of

subcontracting

costs incurred to

the subcontractor

(RMB in million)

Approximate

% of our total

subcontracting

costs

Background

of the

subcontractor

Principal business


Approximate

year(s) of

business

relationship

as at

31 December

2017

Subcontractor I Infrastructure

subcontracting

137.1 22.8% Private

company

General contractors of

municipal engineering and

building construction

engineering

2 years

Subcontractor J Infrastructure

subcontracting and

structural

subcontracting

74.6 12.4% Private

company

Construction and labour

subcontracting

4 years

Subcontractor K Infrastructure

subcontracting and

structural

subcontracting

74.5 12.4% Private

company



engineering, highway

engineering and hydraulic

and hydroelectric

engineering

2 years

Subcontractor L Caisson production and

infrastructure

subcontracting

50.5 8.4% Private

company

Hoisting installment,

underwater construction

work, dredging and

reclamation

5 years

Subcontractor G Infrastructure

subcontracting

33.4 5.6% Private

company


engineering, hoisting

equipment installation,

earth and rock engineering,

decoration engineering and

infrastructure and

foundation engineering

3 years

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Name of

subcontractor

Major services

procured

from the

subcontractor

Approximate

amount of

subcontracting

costs incurred to

the subcontractor

(RMB in million)

Approximate

% of our total

subcontracting

costs

Background

of the

subcontractor

Principal business


Approximate

year(s) of

business

relationship

as at

30 April

2018

Subcontractor K Infrastructure

subcontracting and

structural

subcontracting

15.9 32% Private

company



engineering, highway

engineering and hydraulic

and hydroelectric

engineering

3 years

Subcontractor M Infrastructure

subcontracting and

structural

subcontracting

5.6 11.2% Private

company

General contract for

construction engineering;

construction engineering

design; industrial and civil

engineering construction;

municipal engineering

construction; foundation

construction

2 years

Subcontractor N Infrastructure

subcontracting and

structural

subcontracting

4.7 9.5% Private

company

Grade 2 on general

contracting for construction

of water conservancy and

hydropower projects;

Grade 3 on general

contracting for building

construction projects;

Grade 3 on contracting for

foundation works

10 years

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Name of

subcontractor

Major services

procured

from the

subcontractor

Approximate

amount of

subcontracting

costs incurred to

the subcontractor

(RMB in million)

Approximate

% of our total

subcontracting

costs

Background

of the

subcontractor

Principal business


Approximate

year(s) of

business

relationship

as at

30 April

2018

Subcontractor O Infrastructure

subcontracting and

structural

subcontracting

3.7 7.4% Private

company

Undertaking general

contracting and

professional contracting

works, subcontracting

labour service, wholesale

and retail of building

materials and other legal

projects which do not

require approval

2 years

Subcontractor P Infrastructure

subcontracting and

structural

subcontracting

3.6 7.3% Private

company

Undertaking general

contracting and

professional contracting

works, subcontracting

labour service, wholesale

and retail of building

materials and other legal

projects which do not

require approval

2 years

During the Track Record Period, all of our top five subcontractors were Independent Third

Parties. None of our Directors, their close associates or our Shareholders (whom to the

knowledge of our Directors own more than 5% of the issued Shares) had any interest in any of

our top five subcontractors during the Track Record Period.

Selection and management of our suppliers and subcontractors

We follow our internal criteria in selecting our suppliers and subcontractors, aiming to

establish stable and/or long-term relationship with them. We have maintained a list of

suppliers and subcontractors, which we have selected based on their background and

operational scale, licenses and/or qualifications, customers, reputation, quality and logistics

management and financial condition. Our suppliers and subcontractors are required to provide

raw materials and subcontracting services in accordance with our technology specifications

and project requirements. Our procurement team will work closely with our other operating

teams to source raw materials and subcontracting services from the most appropriate

suppliers and subcontractors. We generally select two or three suppliers or subcontractors for

our raw materials and subcontracting work mainly based on price, quality and services.

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During the Track Record Period, we did not encounter any shortage in the supply of the

required raw materials or subcontracting services from our suppliers and subcontractors.

VESSELS AND CONSTRUCTION EQUIPMENT TO CARRY OUT OUR PORT AND

WATERWAY ENGINEERING WORK AND SERVICES

The port and waterway engineering work carried out by us require the use of specifically

designed vessels and construction equipment. As at the Latest Practicable Date, we owned

two piling barges and a total of other 97 construction equipment, which include but are not

limited to fixed pump, pump truck, mixer, loader, static pile drivers, pile drivers, belt conveyor

and excavators. Typically we use our own vessels and construction equipment to carry out the

majority of our port infrastructure work as they are designed with required specifications and

have provided us with higher flexibility in terms of usage and designation. We also lease some

vessels and construction equipment from third parties to conduct some of our waterway

engineering projects. For the three years ended 31 December 2015, 2016 and 2017 and the

four months ended 30 April 2018, our leasing fees for vessels and construction equipment

amounted to approximately RMB0.4 million, RMB3.6 million, RMB22.5 million and RMB13.3

million, respectively.

The table below sets out a summary of our own major vessels and construction

equipment as at 30 April 2018:

No.

Types of vessels or

equipment Quantity

Purchase

year/period

Expected

useful life

(years)

Average

remaining

useful life

(years)

1. Piling barge number 1 1 2004 25 112. Piling barge number 2 1 2006 25 133. Static pile driver 4 2017 5 44. Pile driver 2 2017 5 45. Mixer truck 14 2016 to 2017 5 3 to 46. Pump truck 3 2016 to 2017 5 3 to 47. Fixed pump 2 2016 5 38. Mixer 2 2017 5 49. Loader 5 2016 to 2017 5 3 to 410. Belt conveyor 1 2017 5 411. Excavator 1 2016 5 3

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Repair and maintenance

The maintenance for our vessels and construction equipment is carried out regularly by

us in accordance with our internal standards. Such internal standards are formulated after

taking into account the technical, engineering and other specific requirements and procedures

set out in the operation manuals of the relevant construction equipment and the actual project

progress. We regularly conduct check-ups, repair and maintenance on our frequently used

construction equipment and vessels depending on their nature and characteristics to prevent

any major construction disruption. During the Track Record Period and up to the Latest

Practicable Date, we had not experienced any material unexpected disruption of operation as

a result of any material failure of vessels and construction equipment.

LICENCES AND PERMITS

The following table sets out the details of our main licences and qualifications in the PRC

and Southeast Asia as at the Latest Practicable Date:

Licence and

qualification Issuing authority

Type(s) of works

covered Expiry date

First-grade general

contractor

qualification of

port and

waterway

engineering (港口與航道工程施工總承包壹級)

MOHURD Port and waterway

engineering

26 April 2021

First-grade

contractor

qualification of

port and coastal

engineering (港口與海岸工程專業承包壹級)

MOHURD Port and waterway

engineering

26 April 2021

First-grade

contractor

qualification of

foundation

engineering (地基基礎工程專業承包一級)

Shanghai Housing

Administration

Foundation

engineering

14 March 2021

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Licence and

qualification Issuing authority

Type(s) of works

covered Expiry date

Second-grade

contractor

qualification of

bridge

engineering (橋樑工程專業承包二級)

Shanghai Housing

Administration

Bridge construction 14 March 2021

Construction

service certificate

Construction

Services

Development

Board of

Indonesia

Construction

service in

Indonesia

11 October 2020

Business license on

construction

service

Investment

Coordinating

Board of

Indonesia

Construction

service in

Indonesia

11 October 2020

Our Directors confirm that we have obtained all necessary licenses, permits, consents

and approvals for our business operations in jurisdictions where we operate. Our Directors

also confirm that we did not experience any material difficulties in obtaining and/or renewing

such licenses, permits, consent and approvals. Furthermore, our Directors confirm that they

are not aware of any circumstances that would significantly hinder or delay the renewal of such

licenses, permits, consents and approvals.

For details of the internal control measures adopted by us to ensure on-going compliance

with the requirements of all our major licenses and permits, please refer to the section headed

“Business – Internal control” in this document.

QUALITY CONTROL

We emphasise our ability to deliver quality port and waterway engineering work and

services to our customers on time and within our pre-determined project budget. Our

management will meet on a regular basis to discuss the status of projects, the technology

problems encountered, quality of raw materials, allocation of manpower, management of

labour and subcontractors to ensure that we are able to resolve the issues and can complete

the works on schedule. During the execution of our projects, we also communicate with our

customers on a daily or weekly basis, including face-to-face meetings at project sites to report

on our progress, our understanding of customers’ requirements, and to respond to our

customers’ directions and queries on the performance of our work and/or services to make

sure that all our work and/or services, including those have been performed by our

subcontractors, are carried out in accordance with the requirements of our customers.

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To ensure our quality control, we have implemented the following procedures:

Quality control over raw materials

We typically purchase raw materials from our qualified suppliers which we consider to bereliable in terms of quality and timing of delivery. We inspect our required raw materials afterthey have been delivered to our project site to ensure that the quality of such raw materials canmeet our project requirements. Raw materials that do not meet the standards or specificationsof our projects will be returned. In addition, to ensure a stable supply of raw materials, we havemaintained good and established working relationships with our suppliers.

Quality control over subcontracting

In each of our projects, we will appoint a project manager to oversee the project. Ourmanagement will carry out inspections on the work performed by both of us and oursubcontractors on a regular basis to ensure that the works completed will satisfy ourcustomers’ requirements, and our work progress can meet our project schedule within ourbudget. In addition, we also assign project managers to station at project sites to oversee andmonitor the progress, safety, quality and workmanship of our and our subcontractors’ work.Our project managers are also responsible for coordination between our project team,subcontractors and customers on the project sites, and reporting to our senior management.

HEALTH AND SAFETY

We have established procedures to provide our workers with a safe and healthy workingenvironment by adopting work safety rules for employees to follow, as set out below:

• Established comprehensive organisational system – We established a safety(health) group which lead by our executive Director. Our safety department isresponsible for the daily safety (health) management work. We also established aseries of safety (health) management systems and regulations. We also arrangedfull-time personnel at the project site to ensure the smooth implementation ofregulations and policies.

• Standardised management system – We implement our current national laws,regulations, methods, standards and procedures on environmental protection andstrictly follow the “Manual of Quality, Environment, and Occupational Health andSafety Management” (《質量、環境和職業健康安全管理手冊》) of our Company. Wealso initiate project safety (health) implementation plan, plan of projects with highrisk and emergency plan at all levels, etc. Temporary facilities shall be set up andsite construction shall be standardised in accordance with the “Interim Measures forthe Standardisation Management of the Project Management Department” (《項目經理部標準化管理暫行辦法》). Furthermore, according to the “Procedures for theDistribution of Labour Protective items” (《勞動防護用品發放管理辦法》) of ourCompany, we distribute and deploy personal protective equipment (work shoes,safety helmets, life jackets and safety belts, etc.) to our employees.

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• Strengthened supervisory construction measures – We have established

procedures to ensure the work-place safety for our employees. We have also

implemented safety guidelines and operating procedures for our production process

and conduct regular and thorough worksite inspection to eliminate potential

hazardous work environment. In addition, we also, from time to time, provide our

employees with periodic physical examination, social insurance, occupational safety

education and training, covering the relevant laws and regulations regarding labour

and production safety, risks in relation to our business operation as well as

measures to reduce such risks so as to enhance their awareness of safety issues,

and carry out periodic inspections to verify compliance and institute an internal

responsibility system for implementing safe production measures.

During the Track Record Period and up to the Latest Practicable Date, we did not have

any material administrative sanctions or penalties imposed upon us for violation of any health

or safety policies or laws.

ENVIRONMENTAL PROTECTION

Our activities may generate water, noise and air pollution which may give rise to

environmental concerns. We are subject to a variety of laws and regulations in the PRC, Brunei

and Indonesia. For details of the environment and safety related laws and regulations

applicable to our operations, please refer to the section headed “Regulatory Overview” in this

document.

We have adopted and implemented various systems and measures to minimise the

possibility of causing environmental pollution and to preserve the ecological environment, as

set out below:

• Environmental protection system – Our project department established an

environmental protection organisation with comprehensive regulations and policies

and arranged onsite personnel at the project site to ensure the smooth

implementation of regulations and policies regarding environmental protection.

• Management system: We execute our current national laws, regulations, methods,

standards and procedures on environmental protection, and strictly follow our

“Manual of Quality, Environment, and Occupational Health and Safety Management”

(《質量、環境和職業健康安全管理手冊》). Also, we implement a three-tier education

system and our environmental protection plan. Temporary facilities shall be set up

and site construction shall be standardised in accordance with our “Interim

Measures for the Standardisation Management of the Project Management

Department” (《項目經理部標準化管理暫行辦法》). Furthermore, according to our

“Procedures for the Distribution of Labour Protective Items” (《勞動防護用品發放管理辦法》), we distribute and deploy personal protective equipment, such as working

shoes, safety helmets, life jackets and safety belts, to our employees.

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• Construction measures: In some cases, as part of our project work, we are required

to supply and install environmental protection facilities to prevent contamination and

adverse impacts caused to the ecological environment. For example, when drilling

bored piles, we will build a temporary mud pool to prevent sludge from entering the

water to pollute the water quality and destroy the ecological system.

These systems and measures set out detailed guidelines on our management and

prevention of water and noise pollution and control of vessel emissions and disposal of

materials. Our project managers are responsible for monitoring and ensuring that these

measures are implemented and maintained by us, as well as compliance by our

subcontractors and their work, where applicable. Particularly, our project managers will

discuss environmental protection issues with our project teams and subcontractors in their

regular meetings during the course of a project.

INSURANCE

During the Track Record Period and up to the Latest Practicable Date, we have

maintained secured insurance policies such as engineering all risks insurance, third party

liability insurance, group life accidental injury insurance and vessel all risks insurance. Our

Directors consider that the existing insurance coverage is adequate having regard to our

current operation and is in the line with the prevailing industry practice. Our Directors confirm

that no material claims have been made in respect of any of our insurance policies during the

Track Record Period and up to the Latest Practicable Date.

During the Track Record Period and up to the Latest Practicable Date, our insurance

coverage also includes social insurance for all of our employees, which are medical insurance,

pension, unemployment insurance, work injury insurance and maternity insurance. We

consider our current insurance coverage to be adequate as we have maintained insurance

policies which are mandatory under the relevant PRC laws and regulations and in accordance

with the industry practice.

For our business operation in Brunei, during the Track Record Period and up to the Latest

Practicable Date, we had complied with the relevant laws and regulations in Brunei which

require our staff with Brunei nationality or permanent residency to be covered by Workers

Compensation Insurance. For our business operation in Indonesia, during the Track Record

Period and up to the Latest Practicable Date, we had contributed to the employees social and

health insurance and heavy equipment insurance in accordance with relevant laws and

regulations in Indonesia.

BUSINESS

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AWARDS AND RECOGNITION

We have been accredited various awards and certificates in recognition of our work and

services, details of which are set out below:

Year(s) Awards and recognitions Issuing authority

2017 Water Transportation Excellent

Project Award in 2016 for Wuxi

(Jiangyin) Port Shenxia Area Six

Port Terminal One Phase I

Project (無錫 (江陰)港申夏港區 6號碼頭一期工程榮獲 2016年度水運交通優質工程獎)

China Water Transportation Construction

Industry Association (中國水運建設行業協會)

2016 National Excellent Engineering

Project in China Power

Investment Zhuhai Hengqin

Island Multiple Supply Gas

Energy Station 2x390 MW Project

(中電投珠海橫琴島多聯供燃氣能源站2x390 MW工程榮獲2016-2017

年度國家優質工程獎)

China Construction Enterprise Management

Association (中國施工企業管理協會)

2011 to 2018 Excellent Construction Enterprise

of National Water Transportation

Construction Project (全國水運工程建設優秀施工企業)

China Water Transportation Construction

Industry Association (中國水運建設行業協會)

2006 to 2018 AAA Credit Rating Enterprise

(合同信用 AAA等級)

Shanghai Contract Credit Promotion

Association (上海市合同信用促進會)

2017 The 18th Baoshan District

Civilised Unit

((第十八屆)寶山區文明單位)

Shanghai Baoshan District Committee and

Shanghai Baoshan District People’s

Government (中共上海市寶山區委員會、上海市寶山區人民政府)

2015 and 2016 The National Outstanding Quality

Management Team in Tongling

Port Yongfeng Port Area

Xinxingjihua Port Project

(銅陵港永豐港區新興際華碼頭工程項目QC小組獲全國優秀質量管理小組)

China Quality Association, National

Federation of Trade Unions, National

Women’s Federation and China Association of

Science and Technology (中國品質協會、中華全國總工會、中華全國婦女聯合會、中國科學技術協會)

BUSINESS

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Year(s) Awards and recognitions Issuing authority

2003 to 2015 National Enterprise with Good

Credit in Honouring Contracts (全國守合同重信用企業)

National Administration of Industry and

Commerce of the PRC (中華人民共和國國家工商行政管理總局)

2014 National Excellent Quality Control

team of Engineering Department

(工程部QC小組被命名為全國優秀質量管理小組)





2014 Four Star Credit Creation

Enterprise (四星級誠信創建企業)

Shanghai Port Industry Association (上海港口行業協會)

2012 Zhenjiang Xinminzhou Port

Project Department National

Quality Control Team Title (鎮江新民洲港區碼頭工程項目部QC小組獲全國優秀質量管理小組)





INTELLECTUAL PROPERTY RIGHTS

Trademarks and other intellectual property

As at the Latest Practicable Date, we had applied for one trademark in the PRC, which is

material to our business. We are also the registered proprietor of two trademarks in Hong Kong

and four patents in the PRC.

For further details of our intellectual property rights, please see the section headed

“Statutory and General Information – B. Further information about our business – 2. Our

intellectual property rights” in Appendix IV to this document. During the Track Record Period

and up to the Latest Practicable Date, we had not experienced any infringement and dispute

of our intellectual property rights which had a material adverse effect on our business.

BUSINESS

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EMPLOYEES

As at the Latest Practicable Date, we had a total of 256 full-time employees in the PRC,

Indonesia and Brunei who are directly hired by us. Our goal is to provide employees with

resources and environment and encourage them to develop careers with us. We provide

employees with on-the-job education, training and other opportunities to improve their skills

and knowledge. We also review the performance of our employees on yearly basis and give

bonus incentives to them, according to their position and contribution to our Group.

Furthermore, the project team members will receive additional bonus incentives if a particular

project wins an award. In addition, we will also distribute year-end bonuses. The table below

sets out a breakdown of our employees by department as at the Latest Practicable Date:

Number of

employees

in Third

Harbor

Maritime(1)(2)

Number of

employees

in Benteng

Indonesia(1)

Number of

employees

in Benteng

Brunei(2)

Management . . . . . . . . . . . . . . . . . . . . . 7 1 1Planning and finance . . . . . . . . . . . . . . 8 2 1Marketing and operation . . . . . . . . . . . . 13 1 1Human resources and administration . 8 1 1Supplies and equipment . . . . . . . . . . . . 6 1 2Project management . . . . . . . . . . . . . . . 12 2 2Work execution . . . . . . . . . . . . . . . . . . . 86 15 85

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . 140 23 93

Notes:

1. The number of employees in Benteng Indonesia included two of our PRC employees designated to BentengIndonesia, which they have entered into employment contracts with Third Harbor Maritime. We have paidrelevant insurance for these two employees both in the PRC and Indonesia.

2. The number of employees in Benteng Brunei included 17 of our PRC employees designated to BentengBrunei, which they have entered into employment contracts with Third Harbor Maritime. We have paid relevantinsurance for these 17 employees in the PRC.

BUSINESS

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PROPERTIES

During the Track Record Period and up to the Latest Practicable Date, we did not own any

properties. We leased premises of approximately 1,103 sq.m. as our offices from Third Harbor

Construction, which is our connected person. For further details of our rental arrangement with

Third Harbor Construction, please refer to the section headed “Connected Transactions –

Fully exempt continuing connected transaction – Tenancy Agreement” in this document.

LEGAL PROCEEDINGS AND REGULATORY COMPLIANCE

We are subject to laws, regulations and supervision by different levels of regulatory

authorities in the PRC, Brunei and Indonesia, and are required to maintain certain licences,

permits and approvals in order to operate our facilities and conduct our business. A summary

of such relevant laws and regulations which our business operations are subject to in these

countries is set out in the section headed “Regulatory Overview” in this document. Our PRC

Legal Advisers, Indonesian Legal Advisers and Brunei Legal Advisers have all confirmed that

we have obtained all relevant licences, permits and approvals required for our business

operations in the PRC, Indonesia and Brunei, and such licences, permits and approvals are

valid and remain in effect as at the Latest Practicable Date.

During the Track Record Period and up to the date of this document, Third Harbor

Construction was involved in two ongoing litigations. The following table sets out the details of

such litigations:

Nature of the

litigation Claimed amount Current status

1. Contractual dispute

between Third Harbor

Construction and a

subcontractor in

relation to its

subcontracting work

performed

RMB190,912 with

interest

Third Harbor Construction had

settled the amount of claim with

the subcontractor in February

2018; to the best knowledge of

our Directors, the subcontractor

has filed the withdrawal of the

claim to Wuhan Maritime Court

on 27 July 2018

BUSINESS

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Nature of the

litigation Claimed amount Current status

2. (i) Third Harbor

Construction

sued a customer

in relation to its

outstanding

construction

payment of a port

infrastructure

project

(ii) The same

customer sued

back Third

Harbor

Construction in

relation to the

construction

quality of a port

infrastructure

project

(i) RMB4,699,616

(ii) RMB8,280,359

(i) Ningbo Maritime Court

ordered (a) the customer to

pay Third Harbor

Construction the outstanding

construction payment of

RMB4,390,085 with interest;

and (b) Third Harbor

Construction to pay the

customer the repair fee of

RMB450,000; both parties

appealed to the higher court

and rejected, and

RMB3,936,025 was frozen at

the customer’s bank account

(ii) Ningbo Maritime Court

ordered Third Harbor

Construction to pay to the

customer the amount of

RMB1,353,942 and the

customer appealed to the

higher court

Considering the nature and legal consequences of the above outstanding litigations

which are against Third Harbor Construction who is no longer part of our Group, our PRC Legal

Advisers are in the opinion that these outstanding claims individually or in aggregate will not

have a material adverse impact upon our financial condition or results of operations.

Nevertheless, we had made provision of approximately RMB3.3 million for these two

outstanding litigations.

Save as disclosed above, as at the Latest Practicable Date, no member of our Group was

engaged in any litigation, claim or arbitration of material importance, nor, to the best

knowledge of our Directors, was any litigation, claim or arbitration of material importance

pending or threatened against any member of our Group.

BUSINESS

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Non-compliances of Benteng Indonesia

During the Track Record Period, we had certain non-compliances in relation to ourbusiness operation in Indonesia, including:

(i) seven contracts in relation to our incorporation and port infrastructure project ofBenteng Indonesia were not written in Indonesian language as required by Article 31of Law No. 24 Year 2009 on National Flag, Language, Emblem and Song, whichsuch contracts might be deemed to be null and void and might not be enforceableunder the Indonesia laws;

(ii) Benteng Indonesia owns heavy equipment and these equipment must be testedevery five years and inspected every year in compliance with the Regulation ofMinister of Manpower in Indonesia. Benteng Indonesia did not possess the relevantcertificates for certain heavy equipment, including tractor head, mix truck and wheelloader, as required by Regulation of Minister of Manpower NumberPER.04/MEN/1985, and also did not possess the certificates for the heavyequipment operators as required by Regulation of Minister of Manpower Number:PER.09/MEN/VII/2010; and

(iii) Benteng Indonesia did not have the company regulation as required by Article 108 ofLaw Number 13 of 2003.

With the assistance from our Indonesian Legal Advisers, (i) Benteng Indonesia andrespective relevant parties have entered into the Indonesian version of the above sevencontracts, of which such contracts were retroactively effective on the initial execution date ofeach contract; (ii) Benteng Indonesia has obtained the heavy equipment certificate and theheavy equipment operator certificate as an implementation of the Work Health and Safetyrequirements pursuant to the Regulation of Minister of Manpower No. 04/1985 and Regulationof Minister of Manpower No.09/2010 as evidenced by: (i) Letter No.560/DTKT.V/WAS/500/2018 dated 8 June 2018 for the certificate of Concrete Mixer withChassis No. DAD14739 and Engine No. 1513F006136; (ii) Letter No.560/DTKT.V/WAS/501/2018 dated 8 June 2018 for the certificate of Concrete Mixer withChassis No. DAD14577 and Engine No. 1513F006132; (iii) Letter No.560/DTKT.V/WAS/498/2018 dated 8 June 2018 for the certificate of Wheel Loader with SerialNo. XUG0300KKGCB03648; and (iv) Letter No. 560/DTKT.V/WAS/499/2018 dated 8 June2018 for the certificate of Tractor Head with Chassis No. MJEFM8JNK9JM18210 and EngineNo. J08ELJFJ20552, all of which were issued by the Regional Office of Manpower andTransmigration of the Government of Sulawesi Utara; and (iii) Benteng Indonesia has laterissued its company regulation, which has been approved by the Ministry of Manpower asevidenced by Decree of the Office of Manpower and Transmigration in DKI Jakarta No. 1415Tahun 2018 on 14 May 2018.

As confirmed by our Indonesian Legal Advisers, we have rectified all of the abovenon-compliances and have been in compliance with the relevant laws and regulations inIndonesia since then. Our Indonesian Legal Advisers are of the view that the above non-compliances shall not cause us to be exposed to any penalty or law enforcement by therelevant authority in Indonesia, nor cause any adverse effect on our business operation inIndonesia.

BUSINESS

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Views of our Directors and the Sole Sponsor in relation to our non-compliances

As confirmed by our Directors, the nature and the circumstances giving rise to the above

non-compliances were principally due to our lack of knowledge on relevant laws and

regulations in Indonesia, and none of such non-compliances were due to the dishonesty or

lack of integrity on the part of any of our Directors. Our Directors are of the view that none of

these non-compliances had any material adverse impact on our business operation in

Indonesia and none of these incidents should impugn the competence of our Directors or their

suitability to act as directors of a listed company under Rules 3.08 or 3.09 of the Listing Rules.

After performing all reasonable due diligence, the Sole Sponsor concurs with our Directors’

view. In addition, upon discovery of the above non-compliances, our Directors, with assistance

from our Indonesian Legal Advisers and other relevant professional advisers, have taken all

reasonable rectification actions to prevent further non-compliance or any possible recurrence

of such non-compliances.

INTERNAL CONTROL

It is the responsibility of our Board to ensure that our Company maintains sound and

effective internal controls to safeguard our Shareholders’ investment and our Group’s assets

at all times. We have adopted a series of internal control policies and procedures designed to

provide reasonable assurance for achieving effective and efficient operation, reliable financial

reporting and compliance with applicable laws and regulations. Highlights of our internal

control system include the following:

Code of conduct

Our code of conduct explicitly communicates to each employee our values, acceptable

criteria for decision-making and our ground rules for behaviour.

Internal audit

Our internal audit function regularly monitors key controls and procedures in order to

assure our management and Board that the internal control system is functioning as intended.

The Audit Committee of our Board is responsible for supervising our internal audit function.

Receivable collection

We seek to maintain strict control over our outstanding receivables to minimise our credit

risk. Our senior management monitors the ageing of our trade, bills and retention receivables

on a regular basis, and has also undertaken measures aimed at managing the ageing of our

trade, bills and retention receivables. In order to increase our future receivable collection and

reduce ageing, we have also implemented receivable collection internal control policy since

December 2017. For more details, please refer to the section headed “Financial Information –

Certain items of combined statements of financial position – Trade and other receivables” in

this document.

BUSINESS

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Compliance with Listing Rules and relevant laws and regulations

We will continue to monitor our compliance with relevant laws and regulations and our

senior management team will work closely with our employees to implement actions required

to ensure our compliance with relevant laws and regulations. We will also continue to arrange

various trainings to be provided by our Hong Kong Legal Advisers to our Directors, senior

management and employees on the Listing Rules, including but not limited to aspects related

to corporate governance and connected transactions, and by our PRC Legal Advisers on PRC

laws and regulations.

We have also obtained advice from our legal advisers in the relevant jurisdictions where

we hold licences and permits for our operation on the requirements for maintaining our major

licences and permits, including but not limited to financial, technical and management criteria.

Mr. Wang Xiuchun (王秀春), our executive Director, has been assigned to monitor our Group’s

on going compliance with such requirements, the respective status of expiration of all our

licences and permits, and timely renewal of such licences and permits in accordance with the

requirements of the relevant authorities.

Views of our Directors and the Sole Sponsor in relation to internal control

In view of the internal control measures adopted by our Group (the major measures were

set out in the paragraph above in this section), our Directors are of the view that we have

adequate internal control procedures and policies in place to prevent any further occurrence of

the non-compliance incidents by our Group in the future. Further, in light of the preventive

measures mentioned above, our Directors are of the view that our Group has adequate and

effective internal control procedures in place. The Sole Sponsor concurs with our Directors’

view. Furthermore, going forward, we will engage external professional advisers to advise us

on compliance matters. Our Directors are of the view that the above measures will be sufficient

to prevent future occurrence of non-compliance incidents.

RISK MANAGEMENT

The ultimate goal of our risk management process is to bring focus and effort to the issues

in our business operations that create impediments to our success. Our risk management

process starts with identifying the major risks associated with our corporate strategy, goals

and business operation. We have adopted risk management policies to access our risks in

terms of their likelihood and potential impact, and then prioritise and pair each risk with a

mitigation plan. We provide training to our employees and encourage an all-embracing culture

of risk management ensuring that all employees are aware of and responsible for managing

risks. Each of our operating departments is responsible for identifying and analysing risks

associated with its function.

BUSINESS

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Our audit personnel, the audit committee of, and ultimately our Board supervise the

implementation of our risk management policy at the corporate level by bringing together each

operating department, such as customisation and development, quality control, procurement

and sales, to collaborate on risk issues among different functions. For details about the

qualifications and experience of the members of the audit committee of and our Board, please

refer to the section headed “Directors, Senior Management and Employees” in this document.

COMPETITION

In the PRC, port, waterway and marine engineering market is mature and strictly

regulated. Generally, competition factors include construction experience, technology and

talents, cost and quality control and customer relations. There are some key barriers to enter

into this market, which include qualification barrier, experiences barrier, capital investment

barrier and talents barrier. For details of the overview of the port, waterway and marine

engineering industry, barriers to entry and competitive landscape in the various markets in

which we operate, please refer to the section headed “Industry Overview” in this document.

BUSINESS

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INTRODUCTION

We expanded our business to Southeast Asia in early 2016, following China’s Belt andRoad Initiative. Pursuant to section 4 of the Companies Act (Cap. 39) Laws of Brunei, a limitedliability company needs to have a minimum of two shareholders. Although there is no foreigninvestment restriction on the incorporation of a company, there may be restriction on acompany with foreign shareholders to conduct business in the port, waterway and marineengineering industry, especially when participating in the government contracts. Please referto the sections headed “Regulatory Overview – Laws and regulations in Brunei” and “RiskFactors – Risks relating to conducting business in Southeast Asia – Risks relating toconducting business in Brunei – We may be required to adjust our shareholding in BentengBrunei through our trust arrangement so that we can conduct government port, waterway andmarine engineering projects in Brunei in the future” in this document for more details in relationto the applicable laws and regulations in Brunei.

Pursuant to the relevant laws and regulations in Indonesia, the maximum foreignownership in a company conducting business in the port, waterway and marine engineeringindustry in Indonesia is limited to 67%. Please refer to the section headed “RegulatoryOverview – Laws and regulations in Indonesia” in this document for more details in relation tothe applicable laws and regulations in Indonesia.

In order to quickly establish our presence in Southeast Asia and/or to comply with allrelevant local laws and regulations, we incorporated Benteng Brunei and Benteng Indonesiaby respectively entering into trust arrangements and contractual arrangements with our localpartner, respectively.

OUR TRUST ARRANGEMENT FOR BENTENG BRUNEI

We incorporated Benteng Brunei in January 2016, which was initially owned as to 50% byMr. Tang Liang (唐亮) (“Mr. Tang”), one of our senior management and the main person incharge of our business operation in Brunei, and 50% by a local partner named Mr. Yong TeckFoo (“Mr. Foo”). Upon completion, each of Mr. Tang and Mr. Foo held one share in BentengBrunei. Pursuant to the separate trust arrangements between Mr. Tang and Mr. Foo, and Mr.Tang and Third Harbor Construction, (i) Mr. Foo agreed to hold 50% of the equity interests ofBenteng Brunei for and on behalf of Mr. Tang; and (ii) Mr. Tang agreed to hold the entire equityinterests of Benteng Brunei for and on behalf of Third Harbor Construction.

On 15 September 2017, Mr. Foo transferred his one share in Benteng Brunei to PSB, andBenteng Brunei also allotted additional 249 shares to PSB and another 24,749 shares to Mr.Tang, making Mr. Tang the holder of 24,750 shares or 99% of the issued shares of BentengBrunei and PSB the holder of 250 shares or 1% of the issued shares of Benteng Brunei. Uponcompletion, Benteng Brunei was owned as to 99% by Mr. Tang and 1% by PSB. Pursuant tothe separate trust arrangements between Mr. Tang and PSB, and Mr. Tang and Third HarborConstruction, (i) PSB agreed to hold 1% of the equity interests of Benteng Brunei for and onbehalf of Mr. Tang; and (ii) Mr. Tang agreed to hold the entire equity interests of BentengBrunei for and on behalf of Third Harbor Construction.

TRUST AND CONTRACTUAL ARRANGEMENTS

– 244 –


As above, Third Harbor Construction had always been the beneficial owner of Benteng

Brunei since its incorporation until the completion of our Offshore Reorganisation. On 19 April

2018, as part of our Offshore Reorganisation, Mr. Tang transferred his 24,750 shares in

Benteng Brunei to Maritime Vansun. PSB has then acknowledged that it holds 250 shares in

Benteng Brunei for and on behalf of Maritime Vansun. As such, Maritime Vansun became the

beneficial owner of Benteng Brunei.

Our Brunei Legal Advisers, after conducting reasonable enquiries and due diligence,

have confirmed that the aforesaid trust agreements for Benteng Brunei are legally binding and

enforceable on Mr. Tang, Mr. Foo, PSB and Third Harbor Construction, respectively, and

comply in fact and in good faith with all relevant laws and regulations in Brunei.

For more details of the corporation information and internal reorganisation of Benteng

Brunei, please refer to the section headed “History, Reorganisation and Corporate Structure –

Expansion of business to Brunei” and “– B. Offshore Reorganisation” in this document.

PSB was incorporated in September 1996 and since then, Mr. Foo has been the

shareholder of PSB as well as the de facto controller. PSB is a construction company which is

certified and accredited by the Ministry of Development in Brunei as a Class VI Contractor. The

Class VI construction licence is the highest level of construction qualification granted in

Brunei. A successful application for a Class VI construction licence requires an accumulation

of many years of excellent construction records as well as a good bank certification as to its

financial condition. To the best knowledge of our Directors, PSB has an extensive construction

portfolio in Brunei which involves urban, construction, highway, bridge and waterwork

construction projects, and PSB has also been cooperating with a number of well-known

Chinese construction companies. As such, we believe that PSB possesses extensive

industrial experience and network in Brunei. We were first introduced to PSB in 2013 when we

participated in a project tender in Brunei. When Third Harbor Construction was tendering for

Brunei Petrochemical Engineering Port and Supporting Construction Project, it was a

requirement of the project owner that the tendering companies should set up locally

incorporated companies with local contractors. Given PSB’s long operating history in Brunei,

our Directors believed that PSB would be our value partner in Brunei. We together

incorporated Benteng Brunei in 2016, and intended to cooperate more in future to win

government construction work in Brunei.


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OUR CONTRACTUAL ARRANGEMENTS FOR BENTENG INDONESIA

We currently hold 67% equity interests in Benteng Indonesia through Engineering

Prosper and the remaining 33% equity interests in Benteng Indonesia is currently held by

PTPB. To consolidate control over and derive the economic benefits from the remaining 33%

equity interests in Benteng Indonesia to our Group, we have entered into the Contractual

Arrangements with PTPB.

The following diagram illustrates the structure of the Contractual Arrangements:

67% 33%

direct legal and beneficial ownership in the equity interest

contractual relationship

Third Harbor Construction

(prior to our Offshore

Reorganisation)/Engineering

Prosper (after our

Offshore Reorganisation)

PTPB

Benteng Indonesia

(2) Loan Agreements

(1) Cooperation Agreements

(3) Pledge of Shares Agreements

(4) Assignment of Rights to Dividends Agreements

(5) Option Agreements

(6) Power of Attorney to Sell

(7) Power of Attorney to Vote

The Contractual Arrangements contain the following key documents:

1. Cooperation agreement entered into between PTSP and Third Harbor Construction,

pursuant to which we formed Benteng Indonesia to engage in the port and waterway

construction business (the “PTSP Cooperation Agreement”);

Third Harbor Construction, PTSP and PTPB entered into a first novation to the PTSP

Cooperation Agreement on 26 April 2018 which was retroactively effective as at the

date of 23 August 2017 (the “PTPB Cooperation Agreement”);

Engineering Prosper, PTPB and Third Harbor Construction entered into a second

novation to the PTPB Cooperation Agreement on 26 April 2018 (the “Engineering

Prosper Cooperation Agreement”, together with the PTSP Cooperation

Agreement and PTPB Cooperation Agreement, referred to as the “Cooperation

Agreements”);


– 246 –


2. Loan agreement entered into among PTPB, PTSP and Third Harbor Construction,

pursuant to which we agreed to provide a loan to PTPB in the sum of USD330,000

(the “PTPB Loan”) for the purpose of investing into Benteng Indonesia (the “PTPB

Loan Agreement”);

The new loan agreement entered into between Engineering Prosper and PTPB on 26

April 2018 after the assignment of the receivables in the PTPB Loan Agreement from

Third Harbor Construction to Engineering Prosper (the “Engineering Prosper Loan

Agreement”, together with the PTPB Loan Agreement, referred to as the “Loan

Agreements”);

3. Pledge of shares agreement entered into among PTPB, Third Harbor Construction

and Benteng Indonesia, pursuant to which PTPB pledged its 330,000 shares,

representing 33% equity interests in Benteng Indonesia to Third Harbor

Construction (the “PTPB Pledge of Shares Agreement”);

The new pledge of shares agreement entered into among PTPB, Engineering

Prosper and Benteng Indonesia on 26 April 2018 after the termination of the PTPB

Pledge of Shares Agreement (the “Engineering Prosper Pledge of Shares

Agreement”, together with the PTPB Pledge of Shares Agreement, referred to as

the “Pledge of Shares Agreements”);

4. Assignment of rights to dividends agreement entered into among PTPB, Benteng

Indonesia and Third Harbor Construction, pursuant to which PTPB agreed to assign

the rights to receive dividends on the 330,000 shares owned by PTPB to Third

Harbor Construction (the “PTPB Assignment of Rights to Dividends

Agreement”);

The new assignment of rights to dividends agreement entered into among PTPB,

Engineering Prosper and Benteng Indonesia on 26 April 2018 after the termination

of the PTPB Assignment of Rights to Dividends Agreement (the “Engineering

Prosper Assignment of Rights to Dividends Agreement”, together with the PTPB

Assignment of Rights to Dividends Agreement, referred to as the “Assignment of

Rights to Dividends Agreements”);

5. Option agreement entered into between PTPB and Third Harbor Construction,

pursuant to which PTPB agreed to grant an option to Third Harbor Construction to

purchase the 330,000 shares owned by PTPB in Benteng Indonesia (the “PTPB

Option Agreement”);

The new option agreement entered into between Engineering Prosper and PTPB on

26 April 2018 after the termination of the PTPB Option Agreement (the “Engineering

Prosper Option Agreement”, together with the PTPB Option Agreement, referred

to as the “Option Agreements”);


– 247 –


6. Power of attorney to sell entered into between PTPB and Third Harbor Construction,pursuant to which PTPB agreed to grant a power of attorney to Third HarborConstruction to sell the 330,000 shares owned by PTPB in Benteng Indonesia (the“PTPB Power of Attorney to Sell”);

The new power of attorney to sell entered into between Engineering Prosper andPTPB on 26 April 2018 after the termination of the PTPB Power of Attorney to Sell(the “Engineering Prosper Power of Attorney to Sell”, together with the PTPBPower of Attorney to Sell, referred to as the “Power of Attorney to Sell”);

7. Power of attorney to vote entered into between PTPB and Third HarborConstruction, pursuant to which PTPB agreed to grant a power of attorney to ThirdHarbor Construction to vote in the shareholders’ meeting to represent the 330,000shares owned by PTPB in Benteng Indonesia (the “PTPB Power of Attorney toVote”); and

The new power of attorney to vote entered into between Engineering Prosper andPTPB on 26 April 2018 after the termination of the PTPB Power of Attorney to Vote(the “Engineering Prosper Power of Attorney to Vote”, together with the PTPBPower of Attorney to Vote, referred to as the “Power of Attorney to Vote”).

Under the Contractual Arrangements, PTPB did not receive any benefits for becoming theholder of 33% equity interests in Benteng Indonesia. From the incorporation of BentengIndonesia until the completion of our Offshore Reorganisation, Third Harbor Construction hadalways been the beneficial owner of Benteng Indonesia. On 26 April 2018, Third HarborConstruction transferred its 670,000 shares in Benteng Indonesia to Engineering Prosper.Upon completion of this share transfer, Engineering Prosper became the beneficial owner ofBenteng Indonesia. For more details of the corporation information and internal reorganisationof our Benteng Indonesia, please refer to the section headed “History, Reorganisation andCorporate Structure – Expansion of business to Indonesia” and “– B. Offshore Reorganisation”in this document. In the event that there will be any business collaboration between PTPB andour Group, our Directors confirm that we will comply with the applicable requirements underthe Listing Rules in relation to the transaction(s), including but not limited to Chapter 14A of theListing Rules as amended from time to time, and all the applicable laws and regulations inIndonesia and/or the place where the transaction(s) takes place.

Background of the Indonesian Shareholders

We invited PTPB to replace PTSP to become the holder of 33% equity interests inBenteng Indonesia in 2017 considering that (i) there is a restriction under the relevantIndonesia laws and regulations on the maximum foreign ownership in an Indonesian companyengaged in the port, waterway and marine engineering industry in Indonesia; and (ii) ourDirectors believe that the Indonesian Shareholders are experienced in the constructionindustry in Indonesia and are both trustworthy. For more details of PTSP, which was anIndependent Third Party and the initial holder of the 33% equity interests of Benteng Indonesiaupon incorporation, please refer to the section headed “History, Reorganisation and CorporateStructure – Corporate and business development history – Expansion of business toIndonesia” in this document.


– 248 –


PTPB is a limited liability company incorporated on 17 January 2008 based on Deed

Number 07 notarised by Ny. Suryati Moerwibowo, S.H, Notary in South Jakarta where such

deed has been authorised by the Ministry of Law and Human Rights of the Republic of

Indonesia based on its Decree Number: AHU-12322.AH.01.01.Tahun 2008 dated 12 March

2008. PTPB is owned and controlled by an Indonesian citizen, Mr. Koentjahro Widjaja (“Mr.

Widjaja”), who is registered as a shareholder owning 95% shares in PTPB as well as the sole

director of PTPB based on Deed Number 44 dated 17 October 2013 passed before Wijanto

Suwongso, S.H, Notary in Jakarta and such deed has been notified to the Ministry of Law and

Human Rights as evidenced by a Letter dated 28 October 2013 Number: AHU-AH.01.10-

44618. The remaining 5% of shares in PTPB is owned by another Indonesian citizen, Mr. Iwan

Biyanto. Both of the Indonesian Shareholders are businessmen and experienced in the

construction industry in Indonesia.

PTPB carries out its business in construction services specifically related to foundation

work including piling and concrete work in Indonesia. The Indonesian Shareholders are

Independent Third Parties to our Group and do not have any relationship with our

Shareholders, Directors or their respective associates. We have known Mr. Widjaja through a

common friend and have entered into business relationship with Mr. Widjaja since 2016. From

the time that the Indonesian Shareholders have entered into the business relationship with us,

they have proven to be trustworthy individuals who always commit in complying with the duty

of PTPB, including assisting Benteng Indonesia to obtain relevant licenses and permits as well

as providing local support and assistance required by Benteng Indonesia in conducting its

business in Indonesia as stipulated in the Cooperation Agreements.

Contractual Arrangements for Benteng Indonesia

Cooperation Agreements

In order to operate our business in Indonesia, Third Harbor Construction and PTSP have

entered into a cooperation agreement. The cooperation agreement was amended and restated

on 26 April 2018 to clarify certain cooperation terms between Third Harbor Construction and

PTSP, which was retroactively effective as at the date of 16 September 2016, i.e. the PTSP

Cooperation Agreement. On 23 August 2017, PTSP transferred its entire equity interest in

Benteng Indonesia to PTPB by entering into a deed of sale and purchase of shares. After such

transfer, PTSP, PTPB and Third Harbor Construction entered into a first novation to the

abovesaid cooperation agreement on 26 April 2018, i.e. the PTPB Cooperation Agreement.

This agreement was retroactively effective as at the date of 23 August 2017 when PTPB

became the shareholder of Benteng Indonesia to replace PTSP. Upon completion of transfer

of the 670,000 shares of Benteng Indonesia from Third Harbor Construction to Engineering

Prosper on 26 April 2018 as part of our Offshore Reorganisation, Engineering Prosper, PTPB

and Third Harbor Construction entered into a second novation to the PTPB Cooperation

Agreement on the same day, i.e. the Engineering Prosper Cooperation Agreement.


– 249 –


Loan Agreements

Third Harbor Construction as lender, and PTSP as borrower, had entered into a loan

agreement, pursuant to which Third Harbor Construction agreed to provide a loan facility of

US$330,000 to PTSP for the purpose of investing into Benteng Indonesia. The loan agreement

was amended and restated on 26 April 2018 to clarify certain terms between Third Harbor

Construction and PTSP, which was retroactively effective as at the date of 16 September

2016.

On 23 August 2017, PTSP transferred its entire equity interest in Benteng Indonesia to

PTPB by entering into a deed of sale and purchase of shares. After such transfer, PTSP, PTPB

and Third Harbor Construction entered into a novation agreement to the abovesaid loan

agreement on 26 April 2018, i.e. the PTPB Loan Agreement. This agreement was retroactively

effective as at the date of 23 August 2017 when PTPB has become the shareholder of Benteng

Indonesia to replace PTSP. The loan was secured by the 330,000 shares owned by PTPB

pursuant to the PTPB Pledge of Shares Agreement.

Upon completion of the transfer of the 670,000 shares of Benteng Indonesia from Third

Harbor Construction to Engineering Prosper on 26 April 2018 as part of our Offshore

Reorganisation, Third Harbor Construction assigned its receivables from the PTPB Loan

Agreement to Engineering Prosper based on: (i) sale and purchase of receivables agreement

dated 26 April 2018 entered into by Engineering Prosper and Third Harbor Construction; (ii)

assignment of receivables agreement dated 26 April 2018 entered into by Engineering Prosper

and Third Harbor Construction, pursuant to which the assignment of receivables was notified

and acknowledged by PTPB on 26 April 2018. Subsequently, PTPB and Engineering Prosper

entered into the Engineering Prosper Loan Agreement on the same day, pursuant to which

Engineering Prosper agreed to provide a loan of US$330,000 to PTPB for the purpose of

investing into Benteng Indonesia. The Engineering Prosper Loan Agreement has a term of 10

years and will be automatically renewed upon expiration unless otherwise notified by

Engineering Prosper and shall be due and payable only on demand made at any time by

Engineering Prosper at its sole discretion.

Pledge of Shares Agreements

In order to ensure the performance of the loan agreement dated 20 October 2016, Third

Harbor Construction as pledgee, and PTSP as pledger, entered into an pledge of shares

agreement on 20 October 2016, pursuant to which PTSP had pledged its 330,000 shares in

Benteng Indonesia to Third Harbor Construction to secure the repayment of a loan facility of

US$330,000 provided by Third Harbor Construction to PTSP. The pledge of shares agreement

was amended and restated on 26 April 2018 to clarify certain terms between Third Harbor

Construction and PTPB, which was retroactively effective as at the date of 16 September

2016.


– 250 –


On 23 August 2017, PTSP transferred its entire equity interest in Benteng Indonesia to

PTPB. After such transfer, as PTSP was no longer a shareholder of Benteng Indonesia, the

pledge of shares agreement entered into by PTSP and Third Harbor Construction was

terminated on 26 April 2018, which was retroactively effective as at 23 August 2017. On 26

April 2018, Third Harbor Construction as pledgee, PTPB as pledger, and Benteng Indonesia

entered into the PTPB Pledge of Shares Agreement on 26 April 2018, which was retroactively

effective as at the date of 23 August 2017 when PTPB became the shareholder in Benteng

Indonesia to replace PTSP.

Upon completion of the transfer of the 670,000 shares in Benteng Indonesia from Third


Reorganisation, PTPB and Third Harbor Construction terminated the PTPB Pledge of Shares

Agreement on 26 April 2018. Subsequently, PTPB, Benteng Indonesia and Engineering

Prosper entered into the Engineering Prosper Pledge of Shares Agreement on 26 April 2018,

pursuant to which PTPB has pledged its 330,000 shares in Benteng Indonesia to Engineering

Prosper.

Pursuant to the Engineering Prosper Pledge of Shares Agreement, PTPB shall deliver to

Engineering Prosper all share certificates and other evidence of ownership in relation to the

330,000 shares owned by PTPB in Benteng Indonesia. These documents shall be retained by

Engineering Prosper until the outstanding loan is fully performed by PTPB in accordance with

the Engineering Prosper Loan Agreement, as determined at the sole discretion of and as

certified in writing by Engineering Prosper.

Assignment of Rights to Dividends Agreements

In order to ensure the performance of the loan agreement dated 20 October 2016, Third

Harbor Construction as assignee, and PTSP as assignor, entered into an assignment of rights

to dividends agreement on 26 April 2018, which was retroactively effective as at the date of 16

September 2016, pursuant to which PTSP assigned and transferred all of its rights and interest

in all dividends or other income paid by Benteng Indonesia with respect to the 330,000 shares

owned by PTSP in Benteng Indonesia to Third Harbor Construction. On 23 August 2017, PTSP

transferred its entire equity interest in Benteng Indonesia to PTPB. After such transfer, as

PTSP was no longer the shareholder of Benteng Indonesia, the abovesaid assignment of

rights to dividends agreement was terminated on 26 April 2018, which was retroactively

effective as at 23 August 2017. Then, Third Harbor Construction as assignee, PTPB as

assignor, entered into the PTPB Assignment of Rights to Dividends Agreement on 26 April

2018, which was retroactively effective as at the date of 23 August 2017 when PTPB became

the shareholder of Benteng Indonesia to replace PTSP, pursuant to which PTPB assigned and

transferred all of its rights and interest in all dividends or other income paid by Benteng

Indonesia with respect to the 330,000 shares owned by PTPB in Benteng Indonesia to Third

Harbor Construction.


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Upon completion of the transfer of the 670,000 shares of Benteng Indonesia from ThirdHarbor Construction to Engineering Prosper on 26 April 2018 as part of our OffshoreReorganisation, PTPB and Third Harbor Construction terminated the PTPB Assignment ofRights to Dividends Agreement on 26 April 2018. Subsequently, PTPB, Benteng Indonesiaand Engineering Prosper entered into the Engineering Prosper Assignment of Rights toDividends Agreement on 26 April 2018, pursuant to which PTPB has assigned and transferredall of its rights and interest in all dividends or other income paid by Benteng Indonesia withrespect to the 330,000 shares owned by PTPB in Benteng Indonesia to Engineering Prosper.

Option Agreements

In order to ensure the performance of the loan agreement dated 20 October 2016, ThirdHarbor Construction and PTSP entered into an option agreement on 26 April 2018, which wasretroactively effective as at the date of 16 September 2016, pursuant to which PTSP grantedan option to Third Harbor Construction to purchase its 330,000 shares in Benteng Indonesia.On 23 August 2017, PTSP transferred its entire equity interest in Benteng Indonesia to PTPB.After such transfer, as PTSP was no longer the shareholder of Benteng Indonesia, the optionagreement was terminated on 26 April 2018, which was retroactively effective as at the date of23 August 2017. Third Harbor Construction and PTPB then entered into the PTPB OptionAgreement on 26 April 2018, which was retroactively effective as at the date of 23 August 2017when PTPB became the shareholder of Benteng Indonesia to replace PTSP.

Upon completion of the transfer of the 670,000 shares in Benteng Indonesia from ThirdHarbor Construction to Engineering Prosper on 26 April 2018 as part of our OffshoreReorganisation, PTPB and Third Harbor Construction terminated the PTPB Option Agreementon 26 April 2018. Subsequently, PTPB and Engineering Prosper entered into the EngineeringProsper Option Agreement on 26 April 2018, pursuant to which PTPB has granted option toEngineering Prosper to purchase 330,000 shares owned by PTPB in Benteng Indonesia.

In the event that Engineering Prosper wants to acquire the remaining shares owned byPTPB in Benteng Indonesia, PTPB will transfer its entire shares in Benteng Indonesia and anyconsideration it receives to (i) Engineering Prosper, (ii) any company which is a holdingcompany or a subsidiary company of Engineering Prosper, or (iii) any other party designatedby Engineering Prosper.

Power of Attorney to Sell

In order to ensure the performance of the loan agreement dated 20 October 2016, PTSPand Third Harbor Construction entered into a power of attorney to sell on 26 April 2018,pursuant to which PTSP granted a power of attorney to Third Harbor Construction to sell its330,000 shares in Benteng Indonesia. This agreement was retroactively effective as at thedate of 16 September 2016. On 23 August 2017, PTSP transferred its entire equity interest inBenteng Indonesia to PTPB. After such transfer, as PTSP was no longer the shareholder ofBenteng Indonesia, the abovesaid power of attorney to sell was terminated on 26 April 2018,which was retroactively effective as at 23 August 2017. Third Harbor Construction and PTPBthen entered into the PTPB Power of Attorney to Sell on 26 April 2018, which was retroactivelyeffective as at the date of 23 August 2017 when PTPB became the shareholder of BentengIndonesia to replace PTSP.


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Reorganisation, PTPB and Third Harbor Construction terminated the PTPB Power of Attorney

to Sell on 26 April 2018. Subsequently, PTPB and Engineering Prosper entered into the

Engineering Prosper Power of Attorney to Sell on 26 April 2018, pursuant to which PTPB has

granted a power of attorney to Engineering Prosper to sell its 330,000 shares in Benteng

Indonesia.

Power of Attorney to Vote

In order to ensure the performance of the loan agreement dated 20 October 2016, PTSP

and Third Harbor Construction entered into a power of attorney to vote on 26 April 2018,

pursuant to which PTSP granted a power of attorney to Third Harbor Construction to attend

and vote in the shareholders’ meeting of Benteng Indonesia and represent PTSP as the owner

of the 330,000 shares in Benteng Indonesia. This agreement was retroactively effective as at

the date of 16 September 2016. On 23 August 2017, PTSP transferred its entire equity interest

in Benteng Indonesia to PTPB. After such transfer , as PTSP was no longer the shareholder of

Benteng Indonesia, the power of attorney to vote was terminated on 26 April 2018, which was

retroactively effective as at 23 August 2017. Third Harbor Construction and PTPB then entered

into the PTPB Power of Attorney to Vote on 26 April 2018, which was retroactively effective as

at the date of 23 August 2017 when PTPB became the shareholder of Benteng Indonesia to

replace PTSP.



Reorganisation, PTPB and Third Harbor Construction terminated the PTPB Power of Attorney

to Vote on 26 April 2018. Subsequently, PTPB and Engineering Prosper entered into the

Engineering Prosper Power of Attorney to Vote on 26 April 2018, pursuant to which PTPB has

granted power of attorney to Engineering Prosper to attend and vote in shareholders’ meeting

of Benteng Indonesia and represent PTPB as the owner of the 330,000 shares in Benteng

Indonesia.

Dispute resolution

All agreements comprising the Contractual Arrangements contain a dispute resolution

provision pursuant to which all disputes, controversies and conflicts between the parties in

connection with the Contractual Arrangements shall, so far as possible, be settled amicably

between the parties.

Failing such amicable settlement, all disputes, controversies and conflicts arising out of

or in connection with the Contractual Arrangements shall be settled by arbitration in Hong

Kong in accordance with the Arbitration Rules of the Hong Kong International Arbitration

Centre. The arbitrators may award remedies over the shares and assets of Benteng Indonesia,

injunctive relief (such as for the conduct of business or to compel the transfer of assets) or

order the winding up of Benteng Indonesia. For the purpose of enforcing any arbitral awards,


– 253 –


the disputing parties shall go to the Clerks Office of the District Court of Central Jakarta. As

advised by our Indonesian Legal Advisers, since both Hong Kong and Indonesia have ratified

the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, any arbitral

award issued by the Hong Kong International Arbitration Centre will be recognised and

enforced in Indonesia under the provisions of the prevailing laws and regulations in Indonesia.

Pending formation of the arbitral tribunal or appropriate cases, the courts of Hong Kong, the

PRC and Indonesia shall have the jurisdictions to grant interim remedies in support of the

arbitration.

Conflict of interest

To ensure our effective control over Benteng Indonesia, we have incorporated terms in

the Contractual Agreements to protect against the potential conflicts of interest between PTPB

and Third Harbor Construction, and subsequently, between PTPB and Engineering Prosper

regarding shareholder’s right. Under the Power of Attorney to Sell and Power of Attorney to

Vote, PTPB has irrevocably appointed Third Harbor Construction/Engineering Prosper, to act

as its attorney to exercise its rights in connection with matters concerning its rights as a

shareholder of Benteng Indonesia, including the rights to vote in a shareholders’ meeting, to

sign minutes and to sell its shares.

Based on the above, our Directors are of the view that the measures we have adopted are

sufficient to mitigate the risks associated with the potential conflicts of interest between our

Group and PTPB and to protect our interest in Benteng Indonesia.

Loss exposure

Since Benteng Indonesia has been owned as to 67% by us through Third Harbor

Construction and subsequently, Engineering Prosper, Benteng Indonesia is regarded as a

subsidiary of our Group and its financial results have been consolidated into our Group’s

financial results as a wholly-owned subsidiary through the use of the Contractual

Arrangements under the applicable accounting principles. Accordingly, our business, results

of operations and financial position would be adversely affected if Benteng Indonesia suffers

losses. The revenue generated from our Benteng Indonesia for the three years ended 31

December 2015, 2016 and 2017 and the four months ended 30 April 2018 was nil, nil and

approximately RMB58.5 million and RMB11.7 million, respectively (derived from a 67%

shareholding interests and 33% indirect interests through the use of the Contractual

Arrangements of our Group in Benteng Indonesia).

Winding up and/or liquidation of Benteng Indonesia

Pursuant to the Engineering Prosper Loan Agreement, upon occurrence of winding up

and/or liquidation of Benteng Indonesia (as the case may be), Engineering Prosper shall be

entitled to declare the PTPB Loan immediately due and payable and enforce the securities

granted by the Indonesian Shareholders and assets of Benteng Indonesia, which will be used

to settle the PTPB Loan and for the benefit of Engineering Prosper.


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Compliance by PTPB with its obligations under the Contractual Arrangements

Pursuant to the Loan Agreements, PTPB has agreed and undertaken to (i) provide the

power of attorneys to sell PTPB’s shares in Benteng Indonesia; (ii) do all acts and things

required to maintain the validity and enforceability of such powers of attorney; and (iii) refrain

from any act, whether revocation or other act, which might terminate or limit Third Harbor

Construction’s or its substitute’s (i.e. Engineering Prosper) rights in or in respect of the shares

under such power of attorney.

If PTPB in its capacity as borrower breaches any provision of the Engineering Prosper

Loan Agreement or any other documents under the Contractual Arrangements relating to it,

Engineering Prosper shall be entitled to accelerate the repayment of the PTPB Loan and

enforce the securities granted by PTPB, including without limitation to cause all the shares

registered under the name of PTPB to be transferred to Engineering Prosper or any third party

appointed by Engineering Prosper in compliance with the applicable Indonesian laws. For

details of the risks involved in the Contractual Arrangements, please refer to the section

headed “Risk Factors – Risks relating to conducting business in Southeast Asia” in this

document.

Death, bankruptcy and/or divorce of the Indonesian Shareholders

Pursuant to Article 3 paragraph 1 of Law Number 40 of 2007 on Limited Liability Company

(the “Indonesian Company Law”) , unless the company is not incorporated properly, the

shareholders of a limited liability company are not personally liable for any contracts entered

by the company. The shareholders of a limited liability company are also not personally liable

for the obligations of the company because the limited liability company is a separate legal

body and independent with its shareholders. Therefore, the shareholders are only liable with

the capital they invest into the company. As confirmed by our Indonesian Legal Advisers, (i)

PTPB has been incorporated properly in accordance with the Indonesian Company Law, and

(ii) the Contractual Arrangements have complied with the requirement of Article 98 of the

Indonesian Company Law and Article 12 of the Articles of Association of PTPB. Therefore, the

Contractual Arrangements entered by PTPB will remain binding against PTPB in the

occurrence of the death, bankruptcy and/or divorce of the Indonesian Shareholders and their

successors (as the case may be). In particular, the Contractual Arrangements shall prevail

over their respective wills, divorce agreements, debt arrangements and other legal

instruments in any form entered into by him/her. Accordingly, there are appropriate

arrangements in place to protect our interest in the event of death, bankruptcy and/or divorce

of the Indonesian Shareholders, and practical difficulties in enforcing the Contractual

Arrangements have been avoided.


– 255 –


Change in the ultimate beneficial owners of PTPB

Based on Article 98 of the Indonesian Company Law in conjunction with Article 12 of the

Articles of Association of PTPB, a director is entitled to represent PTPB within and outside the

court of justice in respect of all matters, and in any event, to conduct any act concerning either

the management of the affairs of PTPB or ownership of its assets, except (i) to borrow or to

lend money on behalf of PTPB, excluding to withdraw money of PTPB from the bank; (ii) to

establish a new company or to participate as a shareholder in another domestic or offshore

company; and (iii) to become a legally binding party under any agreement/arrangement, the

director must obtain written approval from the commissioner of PTPB. Mr. Widjaja has

obtained written approval in relation to the Contractual Arrangements from the sole

commissioner of PTPB based on a Statement of the Commissioners of PTPB dated 26 April

2018. As such, PTPB is a legally binding party under the Contractual Arrangements even if Mr.

Widjaja is no longer a shareholder and director of PTPB. The Contractual Arrangements

entered into by PTPB have complied with the requirement of the Indonesian Company Law and

the Articles of Association of PTPB, which will remain to be valid and binding against PTPB.

However, if there is a breach of the Contractual Arrangements by PTPB or if the new

director of PTPB unilaterally terminates the Contractual Arrangements without the approval of

Engineering Prosper, this will constitute an event of default under the Engineering Prosper

Loan Agreement. Article 10.1.7 of the Engineering Prosper Loan Agreement stipulates that

any circumstances arises which give reasonable grounds in the opinion of Engineering

Prosper to believe that PTPB may not (or may be unable to) perform or comply with any or all

of its obligations under any of the Contractual Arrangements, constitutes as an event of

default. In the occurrence of an event of default, Engineering Prosper shall be entitled to (i)

accelerate the repayment of the Engineering Prosper Loan Agreement, and based on Article

5.2 of the Engineering Prosper Loan Agreement, the loan can only be repaid by transferring

the shares owned by PTPB in Benteng Indonesia to Engineering Prosper or any other party

designated by Engineering Prosper; and (ii) enforce the securities granted, including without

limitation to cause the entire shares registered under the name of PTPB in Benteng Indonesia

to be transferred to Engineering Prosper or any third party appointed by Engineering Prosper

in compliance with the applicable Indonesia laws.

Our Indonesian Legal Advisers are of the view that, in the event that there is a change in

the ultimate beneficial owners of PTPB, PTPB will remain bound to the Contractual

Arrangements and this will not cause any breach of the foreign ownership restriction for

conducting port, waterway and marine engineering business in Indonesia. However, in the

event that there is any breach of the Contractual Arrangements by PTPB caused by the

ultimate beneficial owners, such default will allow Engineering Prosper to enforce the

securities granted by PTPB, including without limitation to cause the entire shares registered

under the name of PTPB in Benteng Indonesia to be transferred to Engineering Prosper or any

third party appointed by Engineering Prosper in compliance with the applicable Indonesian

laws. The change of the registered shareholder of Benteng Indonesia with another party to

replace PTPB will also not result in Benteng Indonesia in breach of the foreign ownership

restriction for conducting port, waterway and marine engineering business in Indonesia.


– 256 –


Termination

The Engineering Prosper Loan Agreement has a term of 10 years and will be

automatically extended for 10 consecutive years unless otherwise notified by Engineering

Prosper, and the loans under the Engineering Prosper Loan Agreement shall be due and

payable only on demand made at any time by Engineering Prosper at its sole discretion. No

prepayment or early repayment of the loans under the Engineering Prosper Loan Agreement

in whole or in part is permitted at any time during the term of the Engineering Prosper Loan

Agreement unless demanded by Engineering Prosper at its sole discretion.

Insurance

We currently have not maintained any insurance policy to cover the risks relating to the

Contractual Arrangements. Please refer to the section headed “Risk Factors – Risks relating

to conducting business in Southeast Asia – We do not have any insurance coverage to cover

our risks relating to our Contractual Arrangements in Indonesia” in this document.

Pursuant to Article 50 of the Indonesian Company Law, the board of directors of a limited

liability company in Indonesia is required to register the pledge of shares at the shareholders

registry. As advised by our Indonesian Legal Advisers, the Pledge of Shares Agreements have

been registered by the board of directors of Benteng Indonesia at the shareholders registry in

Indonesia.

Further, as advised by our Indonesian Legal Advisers, saved for the registration

requirement in respect of the Pledge of Shares Agreements, there is no other registration

requirement in Indonesia applicable to the Contractual Arrangements.

Legality of the Contractual Arrangements

Our Indonesian Legal Advisers, after taking reasonable enquiries and due diligence,

have confirmed that the Contractual Arrangements are legally binding and enforceable on

PTPB, Third Harbor Construction, Engineering Prosper and Benteng Indonesia, respectively,

and comply in fact and in good faith with all relevant laws and regulations of Indonesia.

It was stated in Article 33 Paragraph 1 Law Number 25 of 2007 on Investment in

conjunction with Article 6 Paragraph 6 of Regulation of the Investment Coordinating Board of

the Republic of Indonesia Number 6 of 2018 on Guidelines and Procedures to Investment

License and Facility (the “Indonesian Investment Law”), domestic and foreign investors are

prohibited from entering into agreement and/or issuing statement to confirm that their shares

ownership in a limited liability company is for and in the name of another person. Where a

domestic investor and a foreign investor enter into an agreement and/or make a statement that

their shares ownership in a company is for and in the name of another person, such agreement

and/or statement is declared to be void by operation of law.


– 257 –


None of the Contractual Arrangements entered into by PTPB contains any statement that

its share ownership in Benteng Indonesia is for and in the name of Third Harbor

Construction/Engineering Prosper as restricted by the Indonesian Investment Law. The

Contractual Arrangements are loan transactions whereby PTPB is still the registered and legal

owner of 33% of the shares in Benteng Indonesia notwithstanding that 33% of the shares in

Benteng Indonesia have been pledged by PTPB to Third Harbor Construction/Engineering

Prosper as security for the Loan Agreements, and PTPB has also: (i) assigned its dividends,

(ii) granted option and provided power of attorney to sell its shares in Benteng Indonesia to

Third Harbor Construction/Engineering Prosper to secure the loan. In addition, PTPB has also

provided a power of attorney to Third Harbor Construction/Engineering Prosper to allow Third

Harbor Construction/Engineering Prosper to attend general meetings of shareholders of

Benteng Indonesia and to cast votes in the meetings.

In the occurrence of an event of default under the Contractual Arrangements,

Engineering Prosper will have the right to enforce the security documents including without

limitation to cause the shares registered under the name PTPB in Benteng Indonesia to be

transferred to Engineering Prosper or any party designated by it.

The Contractual Arrangements have met the elements required to establish a contract as

stipulated in Article 1320 of Indonesian Civil Code, which includes: (i) consent, where both

Third Harbor Construction/Engineering Prosper and PTPB have agreed to entered into the

Contractual Arrangements; (ii) capability whereby both Third Harbor

Construction/Engineering Prosper and PTPB are legally capable of entering into the

Contractual Arrangements; (iii) subject, whereby the subject of the Contractual Arrangements

is loan transactions; and (iv) lawful cause, the Contractual Arrangements are not contrary to

public order of Indonesia.

After taking reasonable actions and steps, our Indonesian Legal Advisers are of the

opinion that there are no laws and regulations in Indonesia specifically disallowing foreign

investors to provide loan facility to Indonesian shareholder to gain contractual control of a

foreign restricted business, and neither the execution by PTPB and Third Harbor

Construction/Engineering Prosper of the Contractual Arrangements, nor the compliance by

PTPB and Third Harbor Construction/Engineering Prosper with or performance of the terms

and provisions thereof would: (a) contravene any judgment, decree or order of any court,

arbitrator, administrative agency or other governmental institution to which PTPB and Third

Harbor Construction/Engineering Prosper or any of its assets are subject; (b) violate any

provisions of the articles of association of Benteng Indonesia; and (c) violate or contravene

any provisions of the laws, rules or regulations in Indonesia by PTPB, Third Harbor

Construction/Engineering Prosper and Benteng Indonesia, each being a party to the

Contractual Arrangements.

Our Indonesian Legal Advisers have further opined that the Contractual Arrangements

have not encountered any interference or encumbrance from any governing bodies of

Indonesia and are in compliance with the prevailing laws and regulations of Indonesia during

the Track Record Period and as at the Latest Practicable Date. Our Indonesian Legal Adviser


– 258 –


have also confirmed that given that the Contractual Arrangements are within the domain of

private law in Indonesia which focuses on legal relationship between two parties based on the

principle of freedom of contract under Article 1338 of Indonesian Civil Code that all

agreements made legally shall apply as the law between the parties thereto, the Indonesian

government will not be involved in the use of the Contractual Arrangements or any disputes

with regards to legality of the same. We have also, with the assistance of our Indonesian Legal

Advisers, received a verbal confirmation from Badan Kordinasi Penanaman Modal, which is

the competent authority in Indonesia in charge of issuance of business licenses for

construction services and foreign investment, that the Contractual Arrangements fall under the

domain of private law in Indonesia. This effectively allows Engineering Prosper, as a foreign

investor, to indirectly control 100% of an Indonesian company which engages in the port

engineering construction.

Our Indonesian Legal Advisers have confirmed that it has taken all possible actions and

steps to enable it to reach the above legal conclusions and opinions. In light of the above

opinion from our Indonesian Legal Advisers and as the Contractual Arrangements have not

encountered any interference or encumbrance from any governing bodies of Indonesia during

the Track Record Period and up to the Latest Practicable Date, our Directors are of the view

that the Contractual Arrangements are enforceable under the relevant Indonesian law and

regulations.

Compliance with Laws and Regulations in Indonesia prior to the Contractual Arrangements

As disclosed in the section headed “Regulatory Overview” in this document, the foreign

ownership restriction first came into effect in 2007. Pursuant to the issuance of the Presidential

Regulation No. 77 of 2007, the maximum foreign ownership in an Indonesian company

engaged in construction services was restricted to 55%. Pursuant to the issuance of the

Presidential Regulation No. 36 of 2010 on 25 May 2010 (which was amended by the

Presidential Regulation No. 39 of 2014 on 23 April 2014 and Presidential Regulation No. 44 of

2016 on 12 May 2016), the maximum foreign ownership in an Indonesian company engaged

in construction services has been increased to 67% since 25 May 2010.

Benteng Indonesia was incorporated in 2016 and the Contractual Arrangements have

been put in place since then. For more details of the corporation information of our Benteng

Indonesia and our Offshore Reorganisation, please refer to the section headed “History,

Reorganisation and Corporate Structure – Expansion of business to Indonesia” and “– B.

Offshore Reorganisation” in this document.

Unwinding the Contractual Arrangements

In the event that Indonesian law allows the foreign shareholders to directly hold more than

67% of the interest in an Indonesian company that is engaged in construction services,

Engineering Prosper can exercise its power under the Engineering Prosper Power of Attorney

to Sell and sell certain PTPB’s shares in Benteng Indonesia to Engineering Prosper or to any

member of our Group to the extent permissible under such Indonesian law and/or regulation.


– 259 –


In the event that Indonesian law allows the foreign shareholders to directly hold 100% of

the interest in an Indonesian company that is engaged in construction services, we will unwind

the Contractual Arrangements as soon as possible, including Engineering Prosper exercising

its power under the Engineering Prosper Power of Attorney to Sell, and sell the entire PTPB’s

shares in Benteng Indonesia to Engineering Prosper or to an member of our Group, so that

Benteng Indonesia will become the wholly-owned subsidiary of our Group.

No consideration would be payable by Engineering Prosper or any member of our Group

to PTPB in the unwinding of the Contractual Arrangements mentioned above.


– 260 –


OVERVIEW

Pursuant to Chapter 14A of the Listing Rules, any director, chief executive or substantial

shareholder of our Company or any of our subsidiaries (including any person who, within 12

months preceding the [REDACTED], was a director of our Company or any of our

subsidiaries), or any associate of the above persons will become a connected person of our

Company upon [REDACTED]. Upon [REDACTED], our transactions with such connected

persons will constitute connected transactions under Chapter 14A of the Listing Rules.

We set out below a summary of transactions which will constitute continuing connected

transactions upon [REDACTED]:

Summary of our continuing connected transactions

Historical figures(RMB)

Annual caps(RMB)

TransactionConnectedperson

Nature ofrelationship

Year ended31 December

Fourmonthsended

30 AprilYear ending31 December

2015 2016 2017 2018 2018 2019 2020

Fully exempt continuing connected transaction

Tenancy Agreement Third HarborConstruction

Associate ofMr. Wang

Nil Nil 167,748 134,198 402,595 402,595 234,848

Continuing connected transaction exempt from independent shareholders’ approval requirement

Master ProcurementAgreement

Watts GallopGroup

Associate ofMr. Wang

33.7million

42.4million

88.6million

Nil 15.2million

21.6million

26million

Non-exempt continuing connected transaction

Contractual Arrangements PTPB Substantialshareholderof BentengIndonesia

N/A N/A N/A N/A N/A N/A N/A

FULLY EXEMPT CONTINUING CONNECTED TRANSACTION

Tenancy Agreement

Background

During the Track Record Period, our Group had occupied 5 – 6/F, Tower 17, 2816 Yixian

Road, Shanghai, the PRC (the “Property”) of approximately 1,103 sq.m. as our office. The

Property is owned by Third Harbor Construction. As at the Latest Practicable Date, Third

Harbor Construction was wholly owned by Watts Gallop, which in turn was owned as to 56%

by Mr. Wang and is therefore an associate of Mr. Wang within the meaning of the Listing Rules.

CONNECTED TRANSACTIONS

– 261 –


Historical transaction amounts


30 April 2018, the rental fee paid by Third Harbor Maritime to Third Harbor Construction was

nil, nil, approximately RMB167,748 and RMB134,198, respectively.

Tenancy Agreement

On 14 August 2017, Third Harbor Construction as landlord, and Third Harbor Maritime as

tenant, entered into a tenancy agreement (the “Tenancy Agreement”), pursuant to which

Third Harbor Construction agreed to lease to Third Harbor Maritime the Property for a term of

three years commencing from 14 August 2017 to 13 August 2020 for office use at an annual

rental fee of RMB402,595, inclusive of management fee, water and electricity charges. The

first annual rental fee had been paid before 10 February 2018 and the subsequent annual rent

shall be payable on or before the last day of the previous year during the term of the Tenancy

Agreement. The Tenancy Agreement is renewable at the option of Third Harbor Maritime by

giving two months’ written notice prior to its expiry. We shall have a first right of refusal to lease

the Property. Our Directors confirm that currently there is no plan for relocation. Since

relocation to other properties would result in unnecessary interruptions to our business and

would incur unnecessary additional expenses, we have entered into the Tenancy Agreement

with Third Harbor Construction to ensure our Group’s continuing smooth operation and for

cost-saving purpose.

Annual caps and basis

Our Directors estimate that the maximum amount in respect of the rental payable by us to

Third Harbor Construction for the Property for the three years ending 31 December 2018, 2019

and 2020 will not exceed RMB402,595, RMB402,595 and RMB234,848, respectively.

Our rental fee for the Property payable to Third Harbor Construction was arrived at after

arm’s-length negotiation between the parties by making reference to (i) the historical

transaction amounts during the Track Record Period; and (ii) the prevailing market condition

of the surrounding comparable premises in the vicinity of the Property, and was on terms no

less favourable to us than terms available from Independent Third Parties.

Implications under the Listing Rules

Since each of the applicable percentage ratios for the transactions contemplated under

the Tenancy Agreement is less than 5%, and the annual consideration is less than HK$3

million, the transactions contemplated under the Tenancy Agreement are fully exempted from

all reporting, annual review, announcement, circular and independent Shareholders’ approval

requirements under Rule 14A.76(1) of the Listing Rules.


– 262 –


CONTINUING CONNECTED TRANSACTION EXEMPT FROM INDEPENDENT

SHAREHOLDERS’ APPROVAL REQUIREMENT

Master Procurement Agreement

Background

During the Track Record Period, we had procured raw materials, primarily including steel

and PHC tube piles, from Watts Gallop Group. As at the Latest Practicable Date, Watts Gallop

was owned as to 56% by Mr. Wang and therefore is an associate of Mr. Wang within the

meaning of the Listing Rules.

On 19 October 2018, our Company entered into an agreement with Watts Gallop in order

to govern the procurement of such raw materials (the “Master Procurement Agreement”).

Pursuant to the Master Procurement Agreement, we may procure raw materials, primarily

including steel and PHC tube piles (the “Procured Raw Materials”), from Watts Gallop Group

for a term commencing from the [REDACTED] to 31 December 2020, and the Master

Procurement Agreement will be automatically renewed for a successive period of three years

thereafter unless terminated, among other matters, by either party with not less than 30

business days’ prior written notice, subject to compliance with the Listing Rules. It is expected

that separate definitive procurement agreements will be entered into between members of our

Group and Watts Gallop Group to set out specific terms and conditions of specific transactions

pursuant to the principal terms stipulated in the Master Procurement Agreement.

Historical transaction amounts


30 April 2018, our purchases of Procured Raw Materials from Watts Gallop Group amounted

to approximately RMB33.7 million, RMB42.4 million, RMB88.6 million and nil, respectively,

representing 15.1%, 10.7%, 15.1% and nil of our total cost of raw materials and consumables

used for the same period, respectively, among which, our purchases from the two subsidiaries

of Watts Gallop Group, which will continuously be our connected persons upon [REDACTED],

amounted to approximately RMB33.7 million, RMB40.7 million, RMB22.3 million and nil for the

same period, representing approximately 15.1%, 10.3%, 3.8% and nil of our total cost of raw

materials and consumables used for the same period, respectively. Further, our purchases of

steel and PHC tube piles from Watts Gallop Group for the three years ended 31 December

2015, 2016 and 2017 and the four months ended 30 April 2018 accounted for approximately

74.3%, 41.6%, 66.7% and nil of our total purchases of steel and PHC tube piles for the same

period, respectively.


– 263 –


Reasons for the transaction

The Procured Raw Materials purchased from Watts Gallop Group are primarily used in

our port infrastructure projects in the ordinary and usual course of our business. With years of

stable and long-term business relationship between our Group and Watts Gallop Group and

Watts Gallop Group’s experience in the supply of the Procured Raw Materials, our Directors

believe that Watts Gallop Group is able to provide us with quality Procured Raw Materials at

competitive prices and terms in the open market. In addition, we had also purchased Procured

Raw Materials from Watts Gallop Group prior to the Track Record Period. Hence, Watts Gallop

Group is familiar with our business needs, quality standards and operation requirements

through the long-term cooperation with us. When compared to the similar Procured Raw

Materials offered by Independent Third Parties, the prices and terms offered by Watts Gallop

Group are fair and reasonable, and are comparable to or better than those offered by

Independent Third Parties. Accordingly, our Directors are of the view that it is in the interests

of our Company and the Shareholders as a whole to enter into the Master Procurement

Agreement. Nevertheless, our Directors consider that based on our historical purchase

amount and nature of the raw materials we purchased from Watts Gallop Group during the

Track Record Period, we were able to purchase such Procured Raw Materials with similar

quality standards and business terms from other Independent Third Parties easily, and hence,

we have no reliance on Watts Gallop Group.

Pricing policy

The transactions contemplated under the Master Procurement Agreement will be

conducted in the ordinary and usual course of our business, on normal commercial terms or

better, and on terms which are comparable to or better than those offered by Independent

Third Parties.

For our procurement of raw materials during the Track Record Period, the prices are set

through public tendering and bidding process, which there must be at least two bidders who

are Independent Third Parties attending our tendering and bidding process. We will take into

consideration factors including, but not limited to, the bidders’ sufficient licenses and

qualifications, business scale and capacities and their respective track record. We will also

make reference to the prevailing market terms and prices.

Annual caps and basis

Our Directors estimate that the maximum amount in respect of the transactions

contemplated under the Master Procurement Agreement will not exceed approximately

RMB15.2 million, RMB21.6 million and RMB26 million for the three years ending 31 December

2018, 2019 and 2020, respectively. In arriving at the annual caps, our Directors considered the

following factors: (i) the historical transaction amounts during the Track Record Period; (ii) the

historical unit price of the Procured Raw Materials; and (iii) backlog and the expected wharf

construction projects in the future in the PRC, and the relevant raw materials to be procured.

The annual caps have been set at a relatively lower level than the average historical


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transaction amounts during the Track Record Period as we will purchase from only two

subsidiaries of Watts Gallop Group which will continue to be our connected persons upon

[REDACTED]. For details of the historical transaction amounts with Watts Gallop Group and

the two subsidiaries of Watts Gallop Group respectively, please refer to the paragraph headed

“Master Procurement Agreement – Historical transaction amounts” in this section above.

Implications under the Listing rules

Since one or more of the applicable percentage ratios for the transactions contemplated

under the Master Procurement Agreement are more than 0.1% and all the applicable

percentage ratios are less than 5%, these transactions are qualified under Rule 14A.76(2) of

the Listing Rules as continuing connected transactions exempt from independent

shareholders’ approval requirement.

Our Directors’ and the Sole Sponsor’s views

Our Directors (including our independent non-executive Directors) are of the view that (i)

the continuing connected transactions described above are entered into in the ordinary and

usual course of business of our Group, on normal commercial terms or better and on terms

which are fair and reasonable and in the interests of our Group and our Shareholders as a

whole; and (ii) the proposed annual caps in respect of the transactions contemplated under the

connected transaction agreements described above are fair and reasonable and in the

interests of our Group and our Shareholders as a whole.

The Sole Sponsor is also of the view that (i) the continuing connected transactions

described above are entered into in the ordinary and usual course of the Group’s business, on

normal commercial terms or better and on terms which are fair and reasonable and in the

interests of the Group and the Shareholders as a whole, and the proposed annual caps in

respect of the transactions contemplated under the connected transaction agreements

described above are fair and reasonable and in the interests of our Group and our

Shareholders as a whole.

Application for waiver in respect of the Master Procurement Agreement

For each of the three financial years ending 31 December 2018, 2019 and 2020, the

highest applicable percentage ratio for the transactions contemplated under the Master

Procurement Agreement is expected to exceed 0.1% but less than 5.0%. Accordingly, they are

subject to the announcement requirement under Rule 14A.35 of the Listing Rules and the

annual reporting requirement under Rule 14A.49 and 14A.71 of the Listing Rules.

As the transactions contemplated under the Master Procurement Agreement are and will

continue to be entered into in the ordinary and usual course of our business on a continuing or

recurring basis, our Directors are of the view that strict compliance with the announcement

requirement would be burdensome and would impose additional administrative costs to the

Company.


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Pursuant to Rule 14A.105 of the Listing Rules, we have applied for, and the Stock

Exchange has granted to us, a waiver from strict compliance with the announcement

requirement in respect of the continuing connected transactions under the Master

Procurement Agreement, subject to the aggregate value of each of these continuing

connected transactions for each financial year not exceeding the relevant annual caps amount

set forth in this section.

We will re-comply with the applicable requirements under Chapter 14A of the Listing

Rules before any of the relevant annual caps is exceeded or a material change to the terms

and conditions of the Master Procurement Agreement is proposed.

NON-EXEMPT CONTINUING CONNECTED TRANSACTIONS

Contractual Arrangement

Background

We are primarily engaged in the port, waterway and marine engineering industries in the

PRC and Southeast Asia. Pursuant to the relevant Indonesian laws and regulations, the

maximum foreign ownership in a company that engages in port infrastructure is limited to 67%.

As at the Latest Practicable Date, we directly held 67% equity interests in Benteng Indonesia.

To consolidate control over and derive the economic benefits and risks from the remaining

33% equity interests in Benteng Indonesia, we have entered into Contractual Arrangements

with PTPB.

Principal terms

The Contractual Arrangements consist of (i) loan agreements; (ii) pledge of shares

agreements; (iii) power of attorney to sell; (iv) power of attorney to vote; (v) assignment of

rights to dividend agreements; (vi) option agreements; and (vii) cooperation agreements. For

details and the principle terms of these contracts, please refer to the section headed “Trust and

Contractual Arrangements – Our Contractual Arrangements for Benteng Indonesia ” in this

document.

Implications under the Listing rules

As at the Latest Practicable Date, PTPB directly held 33% equity interests in Benteng

Indonesia, a subsidiary of our Company, and will therefore become a connected person of our

Company under Rule 14A.07(1) of the Listing Rules upon [REDACTED]. Accordingly, the

transactions contemplated under the Contractual Arrangements constitute continuing

connected transactions under Chapter 14A of the Listing Rules and are subject to

announcement, circular and independent shareholders’ approval requirements under Chapter

14A of the Listing Rules.


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Our Directors’ and the Sole Sponsor’s views

Through the Contractual Arrangements, our Group effectively consolidates control over

and derives the economic benefits and risks in respect of the remaining 33% equity interests

in Benteng Indonesia held by PTPB. Our Directors (including our independent non-executive

Directors) are of the view that (i) the Contractual Arrangements are fundamental to our Group’s

legal structure and business operations; (ii) the Contractual Arrangements are on normal

commercial terms or on terms which are more favourable to our Group in the ordinary and

usual course of our Group’s business; and (iii) the terms of the Contractual Arrangements are

fair and reasonable or to the advantage of our Group and are in the interests of our Company

and our Shareholders as a whole.

Our Directors also believe that our Group’s structure whereby the financial results of

Benteng Indonesia are consolidated into our Group’s financial statements as if it was our

Group’s wholly-owned subsidiary, and all the economic benefits and risks of Benteng

Indonesia’s business flow to our Group, places our Group in a special position in relation to the

connected transactions rules. Accordingly, notwithstanding that the transactions

contemplated under the Contractual Arrangements technically constitute continuing

connected transactions for the purpose of Chapter 14A of the Listing Rules, our Directors

consider that it would be unduly burdensome and impracticable, and would add unnecessary

administration costs to our Company, for all the transactions contemplated under the

Contractual Arrangements to be subject to strict compliance with the requirements set out

under Chapter 14A of the Listing Rules, including, among other things, the announcement,

circular and approval of independent Shareholders.

In addition, given the Contractual Arrangements were entered into prior to the

[REDACTED] and have been disclosed in this document, and potential investors of our

Company will participate in the [REDACTED] on the basis of such disclosure, our Directors

consider that compliance with the announcement, circular and the independent Shareholders’

approval requirements in respect thereof immediately after [REDACTED] would add

unnecessary administrative costs to our Company.

To ensure sound and effective operation of our Group after the adoption of the

Contractual Arrangements, our senior management plans to take the following measures:

(a) as part of our Group’s internal control measures, major issues arising from

implementation and performance of the Contractual Arrangements will be reviewed

by our Board on a regular basis which will be no less frequent than on a quarterly

basis. Our Board will determine, as part of its periodic review process, whether legal

advisers and/or other professionals will need to be retained to assist our Group to

deal with specific issues arising from the Contractual Arrangements;

(b) matters relating to compliance and regulatory enquiries from governmental

authorities, if any, will be discussed at such regular meetings which will be no less

frequent than on a quarterly basis;


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(c) the relevant business units and operation divisions of our Group will report regularly,

which will be no less frequent than on a monthly basis, to our senior management on

the compliance and performance conditions under the Contractual Arrangements

and other related matters; and

(d) we shall comply with the conditions prescribed under the waiver granted by the

Stock Exchange in connection with the continuing connected transactions

contemplated under the Contractual Arrangements.

The Sole Sponsor is also of the view that (i) the Contractual Arrangements are

fundamental to our Group’s legal structure and business operations; (ii) the Contractual

Arrangements are on normal commercial terms or on terms which are more favourable to our

Group in the ordinary and usual course of our Group’s business; and (iii) the terms of the

Contractual Arrangements are fair and reasonable or to the advantage of our Group and are

in the interests of our Company and Shareholders as a whole.

Application for waiver in respect of the Contractual Arrangements

Pursuant to Rule 14A.105 of the Listing Rules, we have applied for, and the Stock

Exchange has granted us, a waiver from strict compliance with (i) the announcement, circular

and independent Shareholders’ approval requirements under Chapter 14A of the Listing Rules

in respect of the transactions under the Contractual Arrangements; (ii) the requirement of

setting a maximum aggregate annual value (i.e. an annual cap) in relation to the Contractual

Arrangements under Rule 14A.53 of the Listing Rules; and (iii) the requirement of limiting the

term of the Contractual Arrangements to three years or less under Rule 14A.52 of the Listing

Rules, for so long as the Shares are listed on the Stock Exchange, subject however to the

following conditions:

(a) no change without independent non-executive Directors’ approval: no change to the

terms of the Contractual Arrangements will be made without the approval of the

independent non-executive Directors;

(b) no change without independent Shareholders’ approval: save as described in

paragraph (d) below, no change to the terms of the Contractual Arrangements will be

made without the approval of our Company’s independent Shareholders. Once

independent Shareholders’ approval of any change has been obtained, no further

announcement, circular or approval of the independent Shareholders will be

required under Chapter 14A of the Listing Rules unless and until further changes are

proposed. The periodic reporting requirement regarding the Contractual

Arrangements in the annual reports of our Company (as set out in paragraph (e)

below) will however continue to be applicable;

(c) economic benefits and flexibility: the Contractual Arrangements shall continue to

enable our Group to receive the economic benefits derived by Benteng Indonesia

through (i) our Group’s potential right (if and when so allowed under applicable


– 268 –


Indonesian laws and regulations) to acquire the equity interests of BentengIndonesia; (ii) the business structure under which the economic benefits and risks,being the profits and losses derived from Benteng Indonesia are retained by ourGroup, such that no annual caps shall be set on the amount of the net operatingprofits or losses derived from the business operation of Benteng Indonesia; and (iii)our Group’s absolute right to control the management and operation of, as well as,in substance, all of the voting rights of Benteng Indonesia;

(d) renewal and cloning: the loan agreement entered into between Engineering Prosperand PTPB has a term of 10 years and will be automatically renewed upon expirationunless otherwise notified by Engineering Prosper. On the basis that the ContractualArrangements provide an acceptable framework for the relationship between ourGroup and any of our subsidiary incorporated in Indonesia in which our Group, whileholding the equity interest being the maximum foreign ownership in a company thatengages in port infrastructure in Indonesia as allowed under the relevant Indonesianlaws and regulations, could consolidate control over and derive the economicbenefits and risks in respect of the remaining equity interest held by an Indonesianshareholder of such company, such framework and terms under the ContractualArrangements may be renewed and/or cloned by our Group in the event of (i) theexpiry of the existing arrangements; (ii) the appointment by Engineering Prosper ofanother Indonesian citizen or legal entity fully owned by Indonesian citizen(s) as theholder of the shares of Benteng Indonesia in compliance with the relevantIndonesian laws and regulations; or (iii) any additional Indonesian subsidiary(ies)incorporated or acquired by our Group in future to engage in the same business asthat of Benteng Indonesia, which constitute continuing connected transactionsunder the Listing Rules when justified by business expediency and/or due topotential business growth, without obtaining independent Shareholders’ approval(the “Cloned Arrangements”), on substantially the same terms and conditions asdescribed in the section headed “Trust and Contractual Arrangements – OurContractual Arrangements for Benteng Indonesia” in this document. The directors,chief executive or substantial shareholders (as defined in the Listing Rules) of anyexisting or additional Indonesian subsidiary(ies) incorporated or acquired by ourGroup in future to engage in the same business as that of Benteng Indonesia (whichour Group may establish when justified by business expediency) will, upon renewaland/or cloning of the Contractual Arrangements, however, be treated as our Group’sconnected persons and any transactions between these connected persons and ourGroup (other than those under the Contractual Arrangements and any ClonedArrangements) shall comply with Chapter 14A of the Listing Rules. This condition issubject to relevant Indonesian laws and regulations;

(e) ongoing reporting and approvals: we will disclose details relating to the ContractualArrangements and any Cloned Arrangements in place on an ongoing basis asfollows:

i. the Contractual Arrangements and any Cloned Arrangements in place duringeach financial period will be disclosed in our annual reports and accounts inaccordance with the relevant provisions of the Listing Rules;


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ii. the independent non-executive Directors will review the ContractualArrangements and any Cloned Arrangements annually and confirm in ourannual report and accounts for the relevant year that (i) the transactions carriedout during the relevant year have been entered into in accordance with therelevant terms and conditions of the Contractual Arrangements and any ClonedArrangements such that the revenue generated by Benteng Indonesia and anyother Indonesian subsidiary(ies) under the Cloned Arrangements have beenmainly retained by our Group; (ii) no dividends or other distributions have beenmade by Benteng Indonesia and any other Indonesian subsidiary(ies) under theCloned Arrangements to the holders of its remaining shareholding which arenot otherwise subsequently assigned or transferred to our Group; and (iii) anynew contracts entered into, renewed or reproduced between our Group underthe Cloned Arrangement during the relevant financial period under paragraph(d) above are fair and reasonable on normal commercial terms or moreadvantageous, so far as our Group is concerned and in the interests of ourCompany and our Shareholders as a whole;

iii. we will engage our auditors to carry out procedures annually on thetransactions under the Contractual Arrangements and any ClonedArrangements and to provide a letter to our Directors with a copy to the StockExchange confirming that (i) the transactions have received the approval of ourDirectors and have been entered into in accordance with the relevantContractual Arrangements and any relevant Cloned Arrangements; and (ii) nodividends or other distributions have been made by Benteng Indonesia and anyother Indonesian subsidiary(ies) under the Cloned Arrangements to the holdersof the remaining shareholding interests which are not otherwise subsequentlyassigned or transferred to our Group;

iv. for the purpose of Chapter 14A of the Listing Rules, Benteng Indonesia and anyother Indonesian subsidiary(ies) under the Cloned Arrangements will betreated as our wholly-owned subsidiaries, and its/their directors, chiefexecutive or substantial shareholders and their respective associates (asdefined in the Listing Rules) will be treated as connected persons of ourCompany, and any transactions between these connected persons and ourGroup, other than those under the Contractual Arrangements and any ClonedArrangements, will be subject to the requirements under Chapter 14A of theListing Rules; and

v. Benteng Indonesia undertakes and we shall also procure any other Indonesiansubsidiary(ies) under the Cloned Arrangements to undertake that, for so longas the Shares are listed on the Stock Exchange, each of which will provide oursenior management and our auditors with full access to its relevant records forthe purpose of procedures to be carried out by our auditors on the continuingconnected transactions.

We will re-comply with the applicable requirements under the Listing Rules if there areany subsequent changes to these continuing connected transactions not covered in theabovementioned waiver.


– 270 –


BOARD OF DIRECTORS

Our Board currently consists of eight Directors, comprising five executive Directors and

three independent non-executive Directors. The powers and duties of our Board include

convening general meetings and reporting our Board’s work at our Shareholders’ meetings,

determining our business and investment plans, preparing our periodic financial budgets and

reports, formulating proposals for profit distributions and exercising other powers, functions

and duties as conferred by our Articles of Association. We have entered into a service contract

with each of our executive Directors. We have also entered into a letter of appointment with

each of our independent non-executive Directors.

The table below shows certain information with respect to our Directors:

Name Age

Position in our

Company

Date of

joining

our Group

Date of

appointment

as Director

Roles/

Responsibilities

Mr. Wang Shizhong

(王士忠)

(Note 1)

53 Chairman and

Executive

Director

November

2003

20 December

2017

Responsible for

overall

management and

strategic planning

Mr. Wang Xiuchun

(王秀春)

(Note 1)

51 Executive

Director

January

2002

9 April 2018 Responsible for day-

to-day business

operation

Ms. Wan Yun

(萬雲)

39 Executive

Director

January

2010

9 April 2018 Responsible for

accounting and

financial

management

Mr. Wang Lijiang

(王利江)

(Notes 1 and 2)

30 Executive

Director

March 2014 9 April 2018 Responsible for

overall

administration

Ms. Olive Chen 32 Executive

Director

April 2018 18 April 2018 Responsible for our

general business

development and

client relations

Mr. Wang Hongwei

(王洪衛)

50 Independent

non-executive

Director

19 October

2018

19 October

2018

Supervising and

providing

independent advice

to the Board

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

– 271 –


Name Age

Position in our

Company

Date of

joining

our Group

Date of

appointment

as Director

Roles/

Responsibilities

Mr. How Sze Ming

(侯思明)

41 Independent

non-executive

Director

19 October

2018

19 October

2018

Supervising and

providing

independent advice

to the Board

Mr. Sun Dajian

(孫大建)

64 Independent

non-executive

Director

19 October

2018

19 October

2018

Supervising and

providing

independent advice

to the Board

Notes:

1. Mr. Wang is the uncle of Mr. Wang Lijiang (王利江) and a distant relative of Mr. Wang Xiuchun (王秀春).

2. Mr. Wang Lijiang (王利江) is the son of Mr. Wang Shiqin, a Controlling Shareholder.

Executive Directors

Mr. Wang Shizhong (王士忠), aged 53, was appointed as our executive Director on 20December 2017. Mr. Wang joined our Group in November 2003 and is primarily responsible foroverall management and strategic planning. Mr. Wang is a director of a number of subsidiariesof our Group. From December 1987 to December 1999, Mr. Wang served as a generalmanager at Zhejiang Gallop Construction and Engineering Co., Ltd.* (浙江奔騰建設工程有限公司) (formerly known as Fuyang Municipal Engineering Company* (富陽市市政工程公司)). FromDecember 1999 to May 2004, he was the chairman of Zhejiang Gallop Construction andEngineering Co., Ltd.* (浙江奔騰建設工程有限公司). From May 2004 to December 2007, Mr.Wang was the chairman of Third Harbor Construction. Since November 2003, he has been thechairman of Watts Gallop and Zhejiang Watts Gallop Real Estate Development Co., Ltd.* (浙江華滋奔騰房地產開發有限公司) (formerly known as Zhejiang Gallop Real Estate DevelopmentCo., Ltd.* (浙江奔騰房地產開發有限公司)).

Mr. Wang obtained his diploma in water supply and sewerage from Zhejiang Radio andTelevision University (浙江廣播電視大學) in July 1987.

Mr. Wang Xiuchun (王秀春), aged 51, was appointed as our executive Director on 9 April2018. Mr. Wang Xiuchun is a distant relative of Mr. Wang Shizhong (王士忠). Mr. WangXiuchun joined our Group in January 2002 and is primarily responsible for day-to-day businessoperation. Mr. Wang Xiuchun is a director of a number of subsidiaries of our Group. FromJanuary 1993 to December 1999, Mr. Wang Xiuchun served at Zhejiang Gallop Constructionand Engineering Co., Ltd.* (浙江奔騰建設工程有限公司) (formerly known as Fuyang MunicipalEngineering Company* (富陽市市政工程公司)) as a construction team member and project

manager, respectively. From January 2002 to February 2014, Mr. Wang Xiuchun served in

various positions in Third Harbor Construction, including manager of the equipment


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department, administrative deputy general manager, general manager and chairman. During

these tenures, he was primarily responsible for production equipment management,

administrative and general management, and day-to-day business, management and

production operations, respectively. From February 2009 to December 2013, he was also the

chairman of Shanghai Watts Gallop Holding Industrial Co., Ltd.* (上海華滋奔騰控股集團實業有限公司), where he was primarily responsible for overall management and strategic planning.

From January 2014 to August 2017, he was the chairman of Third Harbor Construction, where

he was responsible for business planning, development strategies, formulation of major

guidelines and policies, and making major business decisions.

Mr. Wang Xiuchun obtained his diploma in industrial and civil architecture from

Zhengzhou University (鄭州大學) in September 2009 and his diploma in engineering

management from Chongqing University (重慶大學) in July 2012, both by distance learning.

Ms. Wan Yun (萬雲), aged 39, was appointed as our executive Director on 9 April 2018.

Ms. Wan joined our Group in January 2010 and is primarily responsible for accounting and

financial management. Ms. Wan is a director of a number of subsidiaries of our Group. From

July 2002 to June 2006, Ms. Wan was the financial administrator in Fuyang Gallop Real Estate

Development Co., Ltd.* (富陽奔騰房地產開發有限公司). From January 2006 to December 2009,

she served as the secretary to the board of directors of Watts Gallop. From January 2010 to

January 2012, she served at Third Harbor Construction as a chief accountant. From January

2012 to February 2018, she was the chief financial officer of Watts Gallop.

Ms. Wan obtained her bachelor of administration with a major in accounting from the

China Agricultural University (中國農業大學) in July 2002.

Mr. Wang Lijiang (王利江), aged 30, was appointed as our executive Director on 9 April

2018. Mr. Wang Lijiang is the nephew of Mr. Wang Shizhong (王士忠). Mr. Wang Lijiang joined

our Group in March 2014 and is primarily responsible for our overall administration. From

November 2010 to March 2014, Mr. Wang Lijiang undertook several positions at Eastern

Communications Co., Ltd. (東方通信股份有限公司), which is listed on the Shanghai Stock

Exchange (stock code: 600776), including senior specialist of the strategic investment

department, secretary to the president and overseas manager of the financial equipment

department. From March 2014 to December 2016, Mr. Wang Lijiang worked as the manager of

the material and equipment department and the assistant to the chairman of Third Harbor

Construction, primarily responsible for material purchase and equipment management. From

January 2016 to February 2018, he was the executive assistant to the chief executive officer,

manager of the human resources administration department and secretary to the board of

directors at Jiangsu Watts Offshore & Engineering Co., Ltd.* (江蘇華滋海洋工程有限公司).

From February 2016 to February 2018, he also served as a secretary to the board of directors

of Watts Gallop.

Mr. Wang Lijiang obtained his bachelor of arts with a major in English (international trade)

from the Hefei University of Technology (合肥工業大學) in June 2009 and a master’s degree in

international marketing and entrepreneurship from the University of Essex in November 2011.


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Ms. Olive Chen, aged 32, was appointed as our executive Director on 18 April 2018. Ms.

Olive Chen joined our Group in April 2018 and is primarily responsible for our general business

development and client relations. Ms. Olive Chen is a director of Shanghai Shanyu, a

subsidiary of our Group. From September 2011 to January 2014, Ms. Olive Chen worked as

the business manager and the real estate project manager in Liqin Investment Co., Ltd.* (力勤投資有限公司), primarily responsible for project team establishment and management, and

assisting on project risk management. Since January 2013, Ms. Olive Chen has been a

director of Worldlink, our [REDACTED] investor, and is primarily responsible for procuring iron

ore in Australia for various steel mills in the PRC which includes various business liaison and

negotiations on business contracts. Since May 2017, Ms. Olive Chen has also become the

general manager of Worldlink, and is responsible for its overall operation and investment in the

PRC.

Ms. Olive Chen obtained her bachelor of arts with a major in art design from the Central

Academy of Fine Arts (中央美術學院) in June 2011, and obtained her master of business

administration from Columbia University in May 2017.

Independent Non-Executive Directors

Mr. Wang Hongwei (王洪衛), aged 50, was appointed as our independent non-executive

Director on 19 October 2018. Since 1996, Mr. Wang Hongwei has been teaching at Shanghai

University of Finance and Economics (上海財經大學), successively served as the head of the

investment department, the deputy director of the post-graduate department, the assistant to

the principal and the director of the research office. Since June 2004, Mr. Wang Hongwei has

been the vice principal of the Shanghai University of Finance and Economics (上海財經大學).

From August 2013 to May 2016, Mr. Wang Hongwei was the dean of the Shanghai Finance

University (上海金融學院). Since June 2016, Mr. Wang Hongwei has been a professor at

Shanghai Lixin University of Accounting and Finance (上海立信會計金融學院). Since February

2017, Mr. Wang Hongwei has been an independent director of Bank of Hangzhou Co., Ltd. (杭州銀行股份有限公司), which is listed on the Shanghai Stock Exchange (stock code: 600926)

and principally engages in the business of providing various financial services.

Mr. Wang Hongwei obtained his PhD degree in agricultural resources economics and

land utilisation management from Nanjing Agricultural University (南京農業大學) in June 1996.

Mr. Wang Hongwei was the general manager of Shanghai Finance Banking Consulting

Co., Ltd.* (上海財銀諮詢有限公司)(“SFBC”), an other limited liability company (其他有限責任公司) established under the laws of the PRC on 16 March 1998 which carried on the business of

investment education. SFBC carried on its business in association with the Investment

Department of Shanghai University of Finance and Economics (上海財經大學投資系)(the

“University”). The business license of SFBC was revoked (吊銷) on 11 December 2001 as an

administrative sanction because SFBC did not attend its annual examination in 2000 (the

“Revocation”).


– 274 –


The Sole Sponsor has considered the following factors:

(i) based on the confirmation of the University (the “Confirmation”), the University

ceased to carry on business through SFBC and administratively having the business

license of SFBC revoked was a more straightforward process than the dissolution of

SFBC;

(ii) based on the notice of administrative sanction (行政處罰決定書) dated 24 August

2001 issued by the Shanghai Administration for Industry and Commerce, the

business licence of SFBC was not revoked as a result of the insolvency of SFBC;

(iii) based on the independent onshore background search carried out by an

independent search agent on 16 July 2018 on Mr. Wang Hongwei and the

independent offshore background search carried out by an independent search

agent on 5 March 2018 on Mr. Wang Hongwei, the Sole Sponsor is not aware of any

other material adverse issues in relation to Mr. Wang Hongwei; and

(iv) based on the confirmation of the Company’s PRC legal adviser and the confirmation

of the Sole Sponsor’s PRC legal adviser, the risk of Mr. Wang Hongwei being

restricted from acting as a director, supervisor or senior management member of a

PRC company as a result of the Revocation is remote.

Based on the foregoing and having considered that the Revocation was an isolated

incident which did not involve any fraud or dishonesty, the Sole Sponsor is of the view that Mr.

Wang Hongwei has the character, experience, integrity and the level of competence required

of a director of a listed issuer under Rules 3.08 and 3.09 of the Listing Rules, and that the

Revocation will not have a material impact on the potential investors of the Company.

Mr. How Sze Ming (侯思明), aged 41, was appointed as our independent non-executive

Director on 19 October 2018. Mr. How has over 15 years of experience in investment banking

and business assurance industries. Since 1 July 2001, Mr. How has worked as a senior

associate in the Assurance and Business Advisory Services Department of

PricewaterhouseCoopers and is primarily responsible for performing assurance and business

advisory work. From July 2002 to June 2003, Mr. How worked as the corporate finance

executive of Tai Fook Securities Company Limited (now known as Haitong International

Securities Company Limited), a company which was principally engaged in securities advisory

broking, securities dealing and leveraged foreign exchange trading, where he was responsible

for corporate finance advisory. From July 2003 to December 2004, Mr. How worked as the

assistant manager at Tai Fook Capital Limited (now known as Haitong International Capital

Limited), a company principally engaged in corporate finance advisory, where he was

responsible for corporate finance advisory. From December 2004 to May 2006, Mr. How

worked as the assistant vice president of CCB International Capital Limited, a company

principally engaged in securities advisory, securities dealing and corporate finance advisory,

where he was responsible for corporate finance advisory. From May 2006 to March 2009, Mr.

How first worked as the associate and later as the assistant vice president in the Investment


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Banking Division of ICEA Capital Limited, a company principally engaged in dealing in

securities and corporate finance advisory, where he was responsible for corporate finance

advisory. From April 2009 to February 2010, Mr. How worked as the assistant vice president

in the Investment Banking Division of ICBC International Holdings Limited, a company

principally engaged in investment banking, where he was responsible for corporate finance

advisory. From February 2010 to June 2015, Mr. How was the managing director of the

Investment Banking Department of CMB International Capital Corporation Limited, a company

principally engaged in investment banking, securities brokerage and asset management,

where he was responsible for corporate finance advisory. From July 2015 to January 2016, Mr.

How was the managing director of Zhaobangji International Capital Limited (currently known

as Well Link International Capital Limited), a company principally engaged in investment

banking and advisory, where he was responsible for corporate finance advisory. Mr. How is

currently the managing director/co-head of corporate finance of Southwest Securities (HK)

Capital Limited, a company principally engaged in investment banking and advisory, where he

is responsible for corporate finance advisory.

Mr. How has held the following positions in the following companies listed on the Stock

Exchange:

Date

Name of listed

company Stock code

Principal business

activities Responsibilities

September 2013 to

September 2016

QPL International

Holdings Limited

243 Manufacture and

sale of integrated

circuit products;

securities trading;

investment holding

Independent non-

executive director and

chairman of audit

committee, member of

remuneration

committee and

nomination committee

February 2015 to

March 2017

Million Stars

Holdings Limited

(formerly known

as Odella Leather

Holdings Limited)

8093 Manufacture and

sale of private

label leather

garments;

provision of online

payment technical

support services;

provision of the

internet

advertising

services

Independent non-

executive director,

chairman of

remuneration

committee, member of

audit committee,

nomination committee

and corporate

governance committee


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Date

Name of listed

company Stock code

Principal business

activities Responsibilities

Since December

2015

World-Link Logistics

(Asia) Holding

Limited

6083 Provision of logistics

services

Independent non-

executive director,

chairman of audit

committee

Since January

2016

Forgame Holdings

Limited

484 Development and

publication of

mobile games and

webgames;

provision of online

wealth

management

services and

internet micro

credit services in

the PRC

Independent non-

executive director,

chairman of audit and

compliance committee

and member of

remuneration

committee

Since May 2017 Shanghai Zendai

Property Limited

755 Property

development

business; property

investments;

management and

agency services;

hotel operations

Independent non-

executive director,

chairman of audit

committee and

member of

remuneration

committee

Since November

2017

1957 & Co.

(Hospitality)

Limited

8495 Operation of

restaurants

brands; provision

of catering

management

consultancy

services

Independent non-

executive director,

chairman of audit

committee and

member of

remuneration

committee

Notwithstanding the above appointments, Mr. How confirmed that he would devote

sufficient time to act as an independent non-executive Director of our Company. As retrieved

from the latest publicly available annual report of each company of which Mr. How is currently

an independent non-executive director (the attendance record of 1957 & Co. (Hospitality)

Limited is currently unavailable due to the fact that the company was listed on 5 December

2017), Mr. How has attended 31 board meetings and committee meetings out of a total of 32

during the respective latest financial periods. In addition, Mr. How is neither a full time member

of the above-named listed companies nor involved in day-to-day operations or management of

the above-named listed companies, and as such he has no executive or management


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responsibility. The Sole Sponsor has also reviewed the announcements published by the

listed companies on whose board he sits, there is no evidence suggesting Mr. How of any

unsatisfactory performance, breach of fiduciary duties or failure to devote sufficient time to

discharge his duties as an independent non-executive director of these companies. Based on

the above, our Directors are of the view that, and the Sole Sponsor concurs, Mr. How will be

able to devote sufficient time to act as an independent non-executive Director of our Company,

in light of his high attendance records for meetings of other listed companies and the

commitment by Mr. How.

Mr. How obtained his bachelor’s degree in business administration from the Chinese

University of Hong Kong (香港中文大學) in December 1999. Mr. How is a fellow member of the

Association of Chartered Certified Accountants and an associate member of the Hong Kong

Institute of Certified Public Accountants.

Mr. Sun Dajian (孫大建), aged 64, was appointed as our independent non-executive

Director on 19 October 2018. From September 1988 to July 1989, Mr. Sun served as a

teaching assistant at Shanghai University of Finance and Economics (上海財經大學). From

May 1990 to September 2000, Mr. Sun worked as a certified accountant at Dahua Accountants

Firm (大華會計師事務所). From September 2000 to January 2014, Mr. Sun successively served

as the deputy chief accountant, the chief accountant, and the financial director of Shanghai

Yaohua Pilkington Glass Group Co., Ltd. (上海耀華皮爾金頓玻璃股份有限公司), a glass

manufacturer listed on the Shanghai Stock Exchange (Stock Code: 600819), and

subsequently became the chief financial officer. From September 2014 to April 2017, Mr. Sun

worked as a certified public accountant at the Shanghai branch of Zhongxinghua Certified

Public Accountants LLP. From May 2017 to present, Mr. Sun has been working as a certified

public accountant at Shanghai New JaHwa CPAs* (上海新嘉華會計師事務所有限公司). Mr. Sun

also served as an independent non-executive director and a member of the audit committee of

Shanghai Jin Jiang International Hotels (Group) Company Limited (Stock Code: 02006) from

November 2006 to September 2015.

Mr. Sun has held the following positions in the following companies listed on the

Shenzhen Stock Exchange:

Date

Name of listed

company Stock code

Principal business

activities

Present

responsibilities

Since August 2014 Zhejiang Haers

Vacuum

Containers

Co., Ltd.

002615 Manufacture and

sale of stainless-

steel vacuum

containers

Independent director


– 278 –


Date

Name of listed

company Stock code

Principal business

activities

Present

responsibilities

Since November

2015

Shanghai SK

Petroleum &

Chemical

Equipment

Corporation Ltd.

002278 Research and

development, and

manufacturing of

petroleum and

chemical

equipment


March 2015 to

March 2018

Shanghai Fortune

Techgroup

Co., Ltd.

300493 Distribution of

semiconductors


Mr. Sun has held the following positions in the following companies listed on the ShanghaiStock Exchange:

Date

Name of listed

company Stock code

Principal business

activities

Present

responsibilities

Since December

2015

Shanghai Jahwa

United Co., Ltd.

600315 Production and sale

of cosmetics,

personal

protection items

and cleaning

supplies


Since January

2016

L&K Engineering

(Suzhou) Co., Ltd.

603929 Provider of

engineering

services, design,

construction and

operation of

sterilised systems

and equipment


Notwithstanding the above appointments, Mr. Sun confirmed that he would devotesufficient time to act as an independent non-executive Director of our Company. As retrievedfrom the latest publicly available annual report of each company of which Mr. Sun is currentlyan independent director, Mr. Sun has attended 38 board meetings out of a total of 38 during therespective latest financial periods. In addition, Mr. Sun is neither a full time member of theabove-named listed companies nor involved in day-to-day operations or management of theabove-named listed companies, and as such he has no executive or managementresponsibility. The Sole Sponsor has also reviewed the announcements published by thelisted companies on whose board he sits, there is no evidence suggesting Mr. Sun of anyunsatisfactory performance, breach of fiduciary duties or failure to devote sufficient time to


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discharge his duties as an independent director of these companies. Based on the above, our

Directors are of the view that, and the Sole Sponsor concurs, Mr. Sun will be able to devote

sufficient time to act as an independent non-executive Director of our Company, in light of his

high attendance records for meetings of other listed companies and the commitment by Mr.

Sun.

Mr. Sun obtained his bachelor qualification in accounting from the Shanghai University of

Finance and Economics (上海財經大學) in July 1983.

Save as disclosed above, none of our Directors have been a director of other public

companies, the securities of which are listed on any securities market in Hong Kong or

overseas during the three years immediately preceding the Latest Practicable Date, and none

of our Directors are personally related to any of our Directors, senior management, substantial

shareholders or Controlling Shareholders.

Save as disclosed above, to the best of the knowledge, information and belief of our

Directors having made all reasonable enquiries, there was no other matter with respect to the

appointment of our Directors that needs to be brought to the attention of the Shareholders and

there was no information relating to our Directors that is required to be disclosed pursuant to

Rules 13.51(2) of the Listing rules, and none of the Directors acted as a director of any

companies listed on the Stock Exchange or other stock exchanges during the three years

immediately preceding the Latest Practicable Date.

SENIOR MANAGEMENT

The following table sets forth certain information in respect of our senior management:

Name Age Position

Date of joining

our Group Roles/Responsibilities

Mr. Sha Yichun

(沙益春)

38 Chief executive

officer

August 2001 Responsible for day-to-

day business

operation

Mr. Tang Liang

(唐亮)

34 Deputy general

manager

July 2006 Responsible for

overseeing our

business operations in

Brunei

Mr. Wang Xifeng

(王喜鋒)

39 Deputy general

manager

October 2004 Responsible for

overseeing our

business operations in

Indonesia


– 280 –


Mr. Sha Yichun (沙益春), aged 38, is the chief executive officer of Third Harbor Maritime

and a director of Benteng Brunei, primarily responsible for our day-to-day business operation.

Mr. Sha joined our Group in August 2001. Mr. Sha is also a director and/or a senior

management member of a number of subsidiaries of our Group. From August 2001 to February

2002, he worked as a project technician of First Engineering Company of Third Harbor Bureau*

(第三航務工程局第一工程公司) (currently known as Third Harbor Construction). From January

2002 to August 2017, Mr. Sha assumed various positions in the project department of Third

Harbor Construction, including project deputy manager, project technical director, project

chief engineer, and general manager.

Mr. Sha obtained his diploma in harbour and waterway engineering from Southeast

University (東南大學) in June 2001. Mr. Sha obtained his diploma in engineering management

from Tongji University (同濟大學) in July 2008 by distance learning.

Mr. Tang Liang (唐亮), aged 34, is the deputy general manager of Third Harbor Maritime

and a director of Benteng Brunei, primarily responsible for overseeing our business operation

in Brunei. Mr. Tang joined our Group in July 2006. Mr. Tang is also a director of a number of

subsidiaries of our Group. From July 2006 to March 2015, Mr. Tang has served various

positions at Third Harbor Construction, including project department construction member and

technician, project manager and project chief engineer, manager of the engineering

department, and assistant to the general manager, primarily responsible for production

management. From March 2015 to August 2017, Mr. Tang was the deputy general manager of

Third Harbor Construction, where he started to be responsible for the overall management of

our business operations in Brunei.

Mr. Tang obtained his bachelor in engineering, majoring in harbour waterway and coastal

engineering from the Jiangsu University of Science and Technology (江蘇科技大學) in June

2006.

Mr. Wang Xifeng (王喜鋒), aged 39, is a deputy general manager of Third Harbor

Maritime and a director of Benteng Indonesia, primarily responsible for overseeing our

business operations in Indonesia. Mr. Wang Xifeng has joined our Group since October 2004.

From October 2004 to July 2015, Mr. Wang Xifeng worked in the engineering department in

Third Harbor Construction, primarily responsible for the construction management of the

project site. From August 2015 to August 2017, Mr. Wang Xifeng was the assistant to the

general manager of Third Harbor Construction, primarily responsible for the establishment and

operation of Benteng Indonesia. Since September 2017, Mr. Wang Xifeng has been the deputy

general manager of Third Harbor Maritime, concurrently serving as a director of Benteng

Indonesia, primarily responsible for the management of the Benteng Indonesia and the

operation of the business of our Group in the Indonesian market.

Mr. Wang Xifeng obtained his diploma in business administration from Zhejiang

University of Technology (浙江工業大學) in June 2004.


– 281 –


To our best knowledge and save as disclosed above, none of our senior management

members have been a director of other public companies, the securities of which are listed on

any securities market in Hong Kong or overseas during the three years immediately preceding

the Latest Practicable Date, and none of our Directors and senior management members are

personally related to any of our Directors, senior management, substantial shareholders or

Controlling Shareholders.

JOINT COMPANY SECRETARIES

Mr. Wang Lijiang (王利江) was appointed on 9 April 2018 as one of the joint company

secretaries of our Company.

Mr. Wong Yu Kit was appointed on 23 May 2018 as one of the joint company secretaries

of our Company. Mr. Wong currently serves as an assistant vice president of SWCS Corporate

Services Group (Hong Kong) Limited, a professional service provider specialising in corporate

services. Mr. Wong has over 8 years of experience in the corporate services field.

Mr. Wong Yu Kit is an assistant vice president of SWCS Corporate Services Group (Hong

Kong) Limited. Mr. Wong has obtained a bachelor’s degree in the Business Administration and

Management from the University of Huddersfield and a master’s degree in corporate

governance from the Open University of Hong Kong. Mr. Wong is an associate member of The

Hong Kong Institute of Chartered Secretaries and The Institute of Chartered Secretaries and

Administrators in the United Kingdom.

BOARD COMMITTEES

Audit Committee

We have established an audit committee on 19 October 2018 with written terms of

reference in compliance with Rule 3.21 of the Listing Rules and paragraph C3 of the Code on

Corporate Governance Practices as set out in Appendix 14 of the Listing Rules. The audit

committee consists of three members, all of whom are independent non-executive Directors,

being Mr. Sun Dajian (孫大建), Mr. How Sze Ming (侯思明) and Mr. Wang Hongwei (王洪衛).

The audit committee is chaired by Mr. Sun Dajian (孫大建). The primary duties of the audit

committee are to assist our Board by providing an independent view on the effectiveness of the

financial reporting system, risk management and internal control systems, to oversee the audit

process, to develop and review our policies and to perform other duties and responsibilities as

assigned by our Board.

Remuneration Committee

We have established a remuneration committee on 19 October 2018 with written terms of

reference in compliance with Rule 3.25 of the Listing Rules and paragraph B1 of the Code on

Corporate Governance Practices as set out in Appendix 14 of the Listing Rules. The

remuneration committee consists of three members, being Mr. How Sze Ming (侯思明), Mr.


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Sun Dajian (孫大建) and Mr. Wang Hongwei (王洪衛). The remuneration committee is chaired

by Mr. How Sze Ming (侯思明). The primary duties of the remuneration committee include (but

without limitation): (i) making recommendations to the Directors regarding our policy and

structure for the remuneration of all our Directors and senior management and on the

establishment of a formal and transparent procedure for developing remuneration policies;

(ii) making recommendations to the Board on the remuneration packages of our Directors and

senior management; and (iii) reviewing and approving the management’s remuneration

proposals with reference to the Board’s corporate goals and objectives.

During the Track Record Period, our remuneration policy for our Directors and senior

management members was based on their experience, level of responsibility and general

market conditions. Any discretionary bonus and other merit payments are linked to the profit

performance of our Group and the individual performance of our Directors and senior

management members. We intend to adopt the same remuneration policy after the

[REDACTED], subject to review by and the recommendations of our remuneration committee.

Nomination Committee

We have established a nomination committee on 19 October 2018 with written terms of

reference in compliance with paragraph A5 of the Code on Corporate Governance Practices

and Corporate Governance Report as set out in Appendix 14 of the Listing Rules. The

nomination committee consists of three members, namely Mr. Wang Hongwei (王洪衛), Mr.

Sun Dajian (孫大建) and Mr. How Sze Ming (侯思明). All of the members are our independent

non-executive Directors. The chairman of the nomination committee is Mr. Wang Hongwei (王洪衛). The primary function of the nomination committee is to make recommendations to our

Board on the appointment or re-appointment of Directors and succession planning for

Directors, in particular the chairman and the chief executive.

CORPORATE GOVERNANCE

Our Directors recognise the importance of incorporating elements of good corporate

governance in the management structures and internal control procedures of our Group so as

to achieve effective accountability.

Our Company has adopted the code provisions stated in the Corporate Governance Code

as set forth in Appendix 14 to the Listing Rules. Our Company is committed to the view that the

Board should include a balanced composition of executive and independent non-executive

Directors so that there is a strong independent element on the Board, which can effectively

exercise independent judgment.

COMPENSATION OF DIRECTORS AND SENIOR MANAGEMENT

Our executive Directors, who are also our employees, receive, in their capacity as our

employees, compensation in the form of salaries, benefits in kind and discretionary bonuses

related to the performance of our Company.


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The aggregate amount of remuneration including fees, salaries, contributions to pensionschemes, housing allowances and other allowances and benefits in kind and discretionarybonuses which were paid to our Directors for the three years ended 31 December 2015, 2016and 2017 and the four months ended 30 April 2018 from our Group was approximately RMB0.3million, RMB0.3 million, RMB0.3 million and RMB0.1 million, respectively.

The aggregate amount of remuneration including fees, salaries, contributions to pensionschemes, housing allowances and other allowances and benefits in kind and discretionarybonuses which were paid by our Group to the five highest paid individuals for the three yearsended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2018 wasapproximately RMB1.1 million, RMB1.4 million, RMB1.5 million and RMB0.4 million,respectively.

No remuneration was paid by our Group to our Directors or the five highest paidindividuals as an inducement to join or upon joining our Group or as a compensation for lossof office in respect of the three years ended 31 December 2015, 2016 and 2017 and the fourmonths ended 30 April 2018. Further, none of our Directors waived any remuneration duringthe same periods.

Under our arrangements currently in force, the aggregate remuneration (including fees,salaries, contributions to pension schemes, housing allowances and other allowances andbenefits in kind) of our Directors for the year ending 31 December 2018 is estimated to be nomore than RMB2.3 million.

COMPLIANCE ADVISER

We have appointed Orient Capital (Hong Kong) Limited as our compliance adviserpursuant to Rule 3A.19 of the Listing Rules. Pursuant to Rule 3A.23 of the Listing Rules, thecompliance adviser will advise us in the following circumstances:

(a) before the publication of any regulatory announcement, circular or financial report;

(b) where a transaction, which might be a notifiable or connected transaction, iscontemplated, including share issues and share repurchases;

(c) where we propose to use the [REDACTED] of the [REDACTED] in a mannerdifferent from that detailed in this document or where our business activities,developments or results deviate from any forecast, estimate or other information inthis document; and

(d) where the Stock Exchange makes an inquiry of us regarding unusual movements inthe price or trading volume of our Shares, the possible development of a false marketin our Shares, or any other matters.

The term of the appointment shall commence on the [REDACTED] and end on the datewhich we distribute our annual report of our financial results for the first full financial yearcommencing after the [REDACTED].


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OVERVIEW

Immediately upon completion of the [REDACTED] and the [REDACTED] (assuming the[REDACTED] is not exercised and without taking into account any Shares which may beissued pursuant to the exercise of any options which may be granted under the Share OptionScheme), Mr. Wang will, through HuaZi Holding, be interested in approximately [REDACTED]of the issued share capital of our Company, and Ye Wang Zhou Holding, which is held as to46.76%, 32.40%, 8.10%, 7.34% and 5.40% by Mr. Ye Kangshun (葉康舜), Mr. Wang Xiuchun(王秀春), Ms. Zhou Meng (周萌), Mr. Wang Shiqin (王士勤), and Mr. Wang Likai (王利凱),respectively, will be interested in approximately [REDACTED] of the issued share capital ofour Company. By virtue of the Acting-in-concert Confirmation, each of Mr. Wang, Mr. YeKangshun (葉康舜), Mr. Wang Xiuchun (王秀春), Ms. Zhou Meng (周萌), Mr. Wang Shiqin (王士勤), Mr. Wang Likai (王利凱), HuaZi Holding and Ye Wang Zhou Holding is our ControllingShareholder. For further details, please refer to the section headed “History, Reorganisationand Corporate Structure – Acting-in-concert Confirmation” and the section headed“Substantial Shareholders” in this document. Immediately upon completion of the[REDACTED] and the [REDACTED] (assuming the [REDACTED] is not exercised and withouttaking into account any Shares which may be issued pursuant to the exercise of any optionswhich may be granted under the Share Option Scheme), our Controlling Shareholders will beinterested in an aggregate of approximately [REDACTED] of the issued share capital of ourCompany.

INTERESTS OF OUR CONTROLLING SHAREHOLDERS IN WATTS GALLOP GROUP

As at the Latest Practicable Date, Mr. Wang, Mr. Ye Kangshun (葉康舜), Mr. WangXiuchun (王秀春), Ms. Zhou Meng (周萌), Mr. Wang Shiqin (王士勤) and Mr. Wang Likai (王利凱) respectively own 56%, 8.66%, 6.00%, 1.50%, 1.36% and 1.00% in Watts Gallop,representing an aggregate of 74.52% in Watts Gallop.

As at the Latest Practicable Date, Watts Gallop Group is principally engaged in the realestate development, investment in property, property management, property leasing,production and manufacturing of transport and storage equipment for new energy, and tradeservice in the PRC. Apart from that, Watts Gallop Group also engages in construction andengineering business including housing construction, highway and bridge engineering andmunicipal public engineering in the PRC. Our Directors are of the view that there is a cleardelineation between the business of our Group and that of Watts Gallop Group and that noneof the business of Watts Gallop Group would directly or indirectly compete with our corebusiness immediately after [REDACTED]. Further, our Controlling Shareholders and ourCompany have entered into the Deed of Non-competition to minimise the potential competitionbetween our Group and Watts Gallop Group in the future.

BUSINESS DELINEATION

As mentioned above, Watts Gallop Group has a variety of businesses, one of which isconstruction and engineering business. Our Directors are of the view that there is a cleardelineation between the business of our Group and that of the construction and engineeringbusiness of Watts Gallop Group, taking into account the differences in various aspectsincluding business model and licensing requirement as detailed below:

Our Group Watts Gallop Group

Business model • Mainly focuses on port,waterway and marineengineering in the PRC andSoutheast Asia (Brunei andIndonesia)

• Watts Gallop Group’s construction andengineering business mainly focuses onhousing construction, highway and bridgeengineering and municipal publicengineering in the PRC only

RELATIONSHIP WITH CONTROLLING SHAREHOLDERS

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Our Group Watts Gallop Group

Licensingrequirement

The PRC:

• First-grade general contractorqualification of port andwaterway engineering (港口與航道工程施工總承包壹級)granted by MOHURD

• First-grade contractorqualification of port andcoastal engineering (港口與海岸工程專業承包壹級) granted byMOHURD

• First-grade contractorqualification of foundationengineering (地基基礎工程專業承包一級) granted by ShanghaiHousing Administration(Note 1)

• Second-grade contractorqualification of bridgeengineering (橋樑工程專業承包二級) granted by ShanghaiHousing Administration(Note 2)

Indonesia:

• Construction service certificategranted by the ConstructionServices Development Boardof Indonesia

• Business license onconstruction service grantedby the InvestmentCoordinating Board ofIndonesia

None of the members of Watts Gallop Grouppossess any contractor qualification certificateof port and waterway which will enable WattsGallop Group to undertake port constructionand waterway engineering projects.

The PRC:

• First-grade general contractor qualificationof municipal public engineering (市政公用工程施工總承包壹級) granted by MOHURD

• First-grade general contractor qualificationof construction engineering (建築工程施工總承包壹級) granted by MOHURD

• Second-grade general contractorqualification of highway engineering (公路工程施工總承包二級) granted by ZhejiangProvince Housing and Urban-RuralConstruction Department (浙江省住房和城鄉建設廳) (“Zhejiang Housing Department”)

• Second-grade contractor qualification ofhighway surface engineering (公路路面工程專業承包二級) granted by Zhejiang HousingDepartment

• Second-grade contractor qualification ofhighway roadbed engineering (公路路基工程專業承包二級) granted by Zhejiang HousingDepartment

• Second-grade contractor qualification ofbridge engineering (橋樑工程專業承包二級)granted by Zhejiang Housing Department(Note 2)

• Second-grade general contractorqualification of electrical and mechanicalservices (機電工程施工總承包二級) grantedby Zhejiang Housing Department

• Third-grade contractor qualification offoundation engineering (地基基礎工程專業承包三級) granted by Hangzhou MunicipalUrban-Rural Construction Administration(杭州市城鄉建設委員會) (Note 1)


– 286 –


Notes:

1. The first-grade contractor qualification of foundation engineering (地基基礎工程專業承包一級)possessed by our Group is the highest level of qualification and it allows us to undertake all kind offoundation construction work in the PRC, while the third-grade contractor qualification of foundationengineering (地基基礎工程專業承包三級) possessed by Watts Gallop Group has restrictions in terms ofheight, depth and weight of the foundation engineering work. During the Track Record Period and up tothe Latest Practicable Date, our Group did not use our first-grade contractor qualification of foundationengineering (地基基礎工程專業承包一級) to carry out any projects. Each of our Controlling Shareholdershas entered into the Deed of Non-competition in favour of our Group to the effect that he/she/it shall (andhe/she/it shall procure his/her/its close associates to) refer new business opportunity identified to ourGroup. For further details, please refer to the paragraph headed “Non-competition Undertakings” in thissection.

2. During the Track Record Period and up to the Latest Practicable Date, our Group did not engage inbridge engineering and construction work. Each of our Controlling Shareholders has entered into theDeed of Non-competition in favour of our Group to the effect that he/she/it shall (and he/she/it shallprocure his/her/its close associates to) refer new business opportunity identified to our Group. Forfurther details, please refer to the paragraph headed “Non-competition Undertakings” in this section.

REASONS FOR NON-INCLUSION OF WATTS GALLOP GROUP INTO OUR GROUP

Taking into account the following reasons, our Directors believe that it is in the interestsof the Shareholders and it would be commercially justifiable not to include Watts Gallop Groupinto our Group:

(a) from a business perspective, Watts Gallop Group has a variety of businesses and isprincipally engaged in the real estate development, investment in property, propertymanagement, property leasing, production and manufacturing of transport andstorage equipment for new energy, and trade service in the PRC. As mentionedabove in the paragraph headed “Business delineation” in this section, there is a cleardelineation between the port, waterway and marine engineering business conductedby our Group and the housing construction, highway and bridge engineering andmunicipal public engineering business of Watts Gallop Group.

(b) from a directorship and management perspective, save for Mr. Wang, there are nocommon directors, supervisors and management personnel in our Group and WattsGallop Group. Mr. Wang does not participate in day-to-day operations of WattsGallop Group. Further, save for Mr. Wang, none of the directors and managementteam of Watts Gallop Group hold any directorship, supervisor’s role, and anymanagement position or have any roles and responsibilities in our Group or areinvolved in the management or operations of our Group, and none of the Directors ormanagement team of our Group hold any directorship and any positions or have anyroles and responsibilities in Watts Gallop Group or are involved in the managementor operations of Watts Gallop Group. Both our Group and Watts Gallop Group makebusiness decisions independently of each other; and

(c) from a staff management perspective, there is a complete separation of staff, andthe respective staff members of our Group and Watts Gallop Group are not on thepayroll of the other. Furthermore, the expertise of staff of our Group and WattsGallop Group are not the same.


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RULE 8.10 OF THE LISTING RULES

Save as disclosed above, each of our Directors, Controlling Shareholders, and theirrespective close associates does not have any interest in any business, apart from thebusiness operated by members of our Group, that competes or is likely to compete, directly orindirectly, with the business of our Group, and would require disclosure pursuant to Rule 8.10of the Listing Rules.

NON-COMPETITION UNDERTAKINGS

Pursuant to the Deed of Non-competition, each of our Controlling Shareholders hasprovided certain undertakings in favour of our Company (for ourselves and as trustee for eachof our subsidiaries) that during the Relevant Period (as defined below), each ControllingShareholder shall (and he/she/it shall procure his/her/its close associates, except any memberof our Group, will):

(a) not, directly or indirectly (including through any body corporate, partnership, jointventure or other contractual arrangement or as a principal or an agent, and whetheron their own account or on behalf of any person, firm or company or through anyentities), invest in, be engaged in, participate in or hold any right or interest in anybusiness or activity which will or may compete with the business engaged by ourGroup (the “Restricted Business”), including but not limited to port, waterway andmarine engineering business;

(b) in respect of any new business opportunity identified, being proposed or[REDACTED] to participate by him/her/it and/or his/her/its close associates for thecarrying on, investment in or engagement in any principal business currently andfrom time to time engaged by our Group (the “New Business Opportunity”),including but not limited to port, waterway and marine engineering business, refer, orshall procure his/her/its close associates to refer (where such New BusinessOpportunity has been proposed or [REDACTED] to him/her/it and/or his/her/its closeassociates by a third party), such New Business Opportunity to our Group by givinga written notice (which shall contain all information of, and the relevant terms andconditions for, the New Business Opportunity obtained thereby) (the “ReferralNotice”) within 14 days after he/she/it and/or his/her/its close associates hasidentified, has been proposed or [REDACTED] to participate in the New BusinessOpportunity, and our Directors who are not our Controlling Shareholders (orhis/her/its close associates) and have no actual or potential material interest in theNew Business Opportunity, directly or indirectly, will decide whether or not to take upsuch opportunity. Any Director who is our Controlling Shareholder (or his/her/itsclose associate) or has actual or potential material interest in the New BusinessOpportunity shall abstain from voting at, and shall not be counted in the quorum for,any Board meeting convened to consider such New Business Opportunity. Thefactors that will be taken into consideration in making the decision shall includewhether taking up the New Business Opportunity is in line with the overall interestsof our Shareholders. If it is decided that our Company shall take up such NewBusiness Opportunity, our Directors shall take all actions as may be necessary,including passing the requisite resolutions, to give full effect to such decision;


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(c) a Controlling Shareholder or his/her/its close associates may take up suchopportunity if (i) a notice is received by the Controlling Shareholder from ourCompany confirming that the New Business Opportunity is not accepted or theControlling Shareholder or his/her/its respective close associates have not receivedfrom our Company a notice confirming that the New Business Opportunity isaccepted within 30 days after the Referral Notice is given to our Company; and (ii)the principal terms of which the Controlling Shareholder or his/her/its respectiveclose associates carry on, invest or engage in are no more favourable than thosemade available to our Company;

(d) allow our Group’s access to his/her/its records which are necessary for monitoringthe performance of the Deed of Non-competition; and

(e) provide to our Company and/or our Directors (including the independent non-executive Directors) from time to time all information necessary for an annual reviewby the independent non-executive Directors with regard to compliance with theterms of the Deed of Non-competition. Such review results will be disclosed in ourCompany’s annual reports after [REDACTED]. Each of our Controlling Shareholdershas also undertaken to allow our Directors, their respective representatives and theauditors of our Group to have sufficient access to the relevant records of the relevantControlling Shareholder and his/her/its close associates to ensure their compliancewith the terms and conditions of the Deed of Non-competition. Each of ourControlling Shareholders has also undertaken to issue an annual confirmation to uson compliance with the terms of the Deed of Non-competition, and consenting to thedisclosure of such confirmation in the annual reports of our Company, therebyenabling our Company to keep monitoring the compliance with the Deed of Non-competition by our Controlling Shareholders.

For the purpose of the Deed of Non-competition, “Relevant Period” with respect to eachControlling Shareholder means the period commencing from the [REDACTED] and expiringon the earlier of the date on which (a) that Controlling Shareholder and his/her/its closeassociates (individually or taken as a whole) cease to own 30% or more of the then issuedshare capital of our Company directly or indirectly or cease to be considered as a controllingshareholder (within the meaning ascribed to it under the Listing Rules from time to time) of ourCompany and do not have power to control the majority of the Board; and (b) the Shares ceaseto be listed on the Stock Exchange.

CORPORATE GOVERNANCE MEASURES

To further protect the interests of the minority Shareholders, our Company will adopt thefollowing corporate governance measures to manage any potential conflicts of interest:

(a) our Articles provide that, unless otherwise provided, a Director shall not vote on anyresolution approving any contract or arrangement or any other proposal in whichsuch Director or any of his close associates has a material interest nor shall suchDirector be counted in the quorum present at the meeting;


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(b) unless invited by a majority of our independent non-executive Directors, our

Controlling Shareholders and his/her/its close associate being a Director shall

exclude himself/herself from any meeting convened to consider any issues arising

under the Deed of Non-competition;

(c) our Company will disclose decisions on matters reviewed by our independent

non-executive Directors relating to the compliance with the Deed of Non-competition

in our Company’s annual reports; and

(d) we have appointed Orient Capital (Hong Kong) Limited as our compliance adviser,

which will provide advice and guidance to us in respect of compliance with the

applicable laws and the Listing Rules including various requirements relating to

directors’ duties and corporate governance.

Further, any transaction that is proposed between our Group and our Controlling

Shareholders and/or their respective close associates will be required to comply with the

requirements of the Listing Rules, including, where appropriate, the reporting, annual review,

announcement, circular and independent Shareholders’ approval requirements under Chapter

14A of the Listing Rules.

During the Track Record Period, there were certain transactions between our Group and

Watts Gallop Group and such transactions will continue after the [REDACTED]. For further

details, please refer to the section headed “Connected Transactions” in this document. In

order to ensure that such continuing connected transactions with Watts Gallop Group are/will

be entered into on normal commercial terms that are in the interests of our Group and our

Shareholders as a whole, our Company will adopt the following specific corporate governance

measures:

(a) the implementation of the continuing connected transactions with Watts Gallop

Group will be monitored and reviewed by our Board (including the independent

non-executive Directors) and the senior management on a regular basis, with

reference to terms of similar transactions with the Independent Third Parties;

(b) pursuant to the Corporate Governance Code, our Directors (including the

independent non-executive Directors) will be able to seek independent professional

advice in respect of the continuing connected transactions with Watts Gallop Group

in appropriate circumstances;

(c) we will engage our auditors to report on the continuing connected transactions with

Watts Gallop Group every year in accordance with the requirement under Chapter

14A of the Listing Rules. The auditors must provide a letter to our Board confirming

whether anything has come to their attention that causes them to believe that the

continuing connected transactions with Watts Gallop Group: (i) have not been

approved by the Board; (ii) were not, in all material respects, in accordance with the

pricing policies of our Group if the transactions involve the provision of goods or


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services by our Group; (iii) were not entered into, in all material respects, in

accordance with the relevant agreement governing the transactions; and (iv) have

exceeded the annual cap; and

(d) we will duly disclose in our annual reports the continuing connected transactions

with Watts Gallop Group during each financial year in accordance with the

requirement under Chapter 14A of the Listing Rules, together with confirmation by

our independent non-executive Directors on whether such transactions with Watts

Gallop Group are conducted (i) in the ordinary and usual course of business; (ii) on

normal commercial terms or better, and are fair and reasonable; and (iii) in the

interest of our Company and our Shareholders as a whole.

INDEPENDENCE FROM OUR CONTROLLING SHAREHOLDERS

Having considered the following factors, our Directors are satisfied that we are capable of

carrying on our business independently from our Controlling Shareholders and their respective

close associates after [REDACTED].

Operational Independence

We manage all the operating facilities relating to our business save for disclosed in the

section headed “Connected Transaction” in this document. We have sufficient operational

capacity in terms of capital, vessels and construction equipment, facilities and employees to

operate our business independently, with the independent right to make operational decisions

and implement such decisions. Other than the transactions disclosed in the section headed

“Connected Transactions” in this document, we have independent access to customers and

suppliers and an independent management team to handle our day-to-day operation. Our

organisational structure also consists of separate departments with specific area of

responsibilities. Based on the above, our Directors believe that we are able to operate

independently from our Controlling Shareholders and their respective close associates after

[REDACTED].

Management Independence

Our Board comprises five executive Directors, namely, Mr. Wang, Mr. Wang Xiuchun (王秀春). Ms. Wan Yun (萬雲), Mr. Wang Lijiang (王利江) and Ms. Olive Chen, and three

independent non-executive Directors, namely, Mr. Wang Hongwei (王洪衛), Mr. How Sze Ming

(侯思明) and Mr. Sun Dajian (孫大建). Our senior management team is led by a team of

experienced senior personnel with expertise in the business of our Group, comprises Mr. Sha

Yichun (沙益春) (our chief executive officer), Mr. Tang Liang (唐亮) and Mr. Wang Xifeng (王喜峰).

Mr. Wang, one of our Controlling Shareholders, is our chairman of the Board and an

executive Director, and Mr. Wang Xiuchun (王秀春), one of our Controlling Shareholders, is an

executive Director. Mr. Wang Lijiang (王利江) is the nephew of Mr. Wang and the son of Wang


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Shiqin (王士勤), a Controlling Shareholder. Apart from Mr. Wang, Mr. Wang Xiuchun (王秀春)

and Mr. Wang Lijiang (王利江), all of our Directors and senior management are independent

from our Controlling Shareholders and their respective close associates. Our management

and operational decisions are made by our executive Directors and senior management, a

majority of whom have served our Group for a substantial period of time and have substantial

experience in the industry in which we are engaged. Please refer to the section headed

“Directors, Senior Management and Employees” in this document for further details of our

Directors and senior management members.

Each of our Directors is aware of his/her fiduciary duties as a Director of our Company

which require, among other things, that he/she acts for the benefit and in the best interests of

our Company and does not allow any conflict between his/her duties as a Director and his/her

personal interest. In the event that there is a potential conflict of interest arising out of any

transaction to be entered into between our Group and our Directors or their respective close

associates, the interested Director(s) shall abstain from voting at the relevant Board meetings

of our Company in respect of such transactions and shall not be counted in the quorum. Based

on the above, our Directors believe that we are able to manage our business independently

from our Controlling Shareholders and their respective close associates after [REDACTED].

Financial Independence

During the Track Record Period, no loan or advance had been provided by our Controlling

Shareholders or their respective associates to our Group. During the Track Record Period,

guarantees had been provided by our Controlling Shareholders and their respective close

associates on our bank borrowing and such guarantees had been fully released as at the

Latest Practicable Date. We have sufficient capital and banking facilities to operate our

business independently from our Controlling Shareholders and their respective associates. In

addition, we have our own accounting systems and finance department and we make financial

decisions according to our own business needs. Based on the above, our Directors believe

that we are able to maintain financial independence from our Controlling Shareholders and

their respective close associates after the [REDACTED].

Administrative Independence

To ensure the independence of the operation and business of our Group from our

Controlling Shareholders and their respective close associates, we have our own

organisational structure with independent departments, each with specific areas of

responsibility. We have our own administration, finance and human resources and other

systems and teams which have been operating and are expected to continue to operate

separately from our Controlling Shareholders and their respective close associates. We also

maintain a set of comprehensive internal control measures to facilitate the effective operation

of our business.


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SUBSTANTIAL SHAREHOLDERS

So far as our Directors are aware, immediately following completion of the [REDACTED]

and the [REDACTED] (assuming the [REDACTED] is not exercised and without taking into

account any Shares which may be issued pursuant to the exercise of any options which may

be granted under the Share Option Scheme), the following persons will have interests or short

positions in the Shares or underlying Shares which would fall to be disclosed to our Company

and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO or

which would be directly or indirectly interested in 10% or more of the nominal value of any class

of share capital or shares carrying rights to vote in all circumstances at general meetings of our

Company:

Shares held as at the LatestPracticable Date, and prior to

the [REDACTED] and the[REDACTED](1)

Shares held immediatelyfollowing the completion of


Name ofShareholder Nature of Interest Number

Percentage(approximately) Number

Percentage(approximately)

HuaZi Holding(2)(5) Beneficial Owner 1,353,924(L) [REDACTED]% [REDACTED](L) [REDACTED]

Mr. WangShizhong(王士忠)(2)(3)(5)

Interest held jointly withanother person; interest in acontrolled corporation

1,801,665(L) [REDACTED]% [REDACTED](L) [REDACTED]

Ye Wang ZhouHolding(4)(5)

Beneficial Owner 447,741(L) [REDACTED]% [REDACTED](L) [REDACTED]

Mr. Ye Kangshun(葉康舜)(2)(3)(4)(5)



Mr. Wang Xiuchun(王秀春)(2)(3)(4)(5)



Ms. Zhou Meng(周萌)(2)(3)(4)(5)



Mr. Wang Shiqin(王士勤)(2)(3)(4)(5)




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Shares held as at the LatestPracticable Date, and prior to


Shares held immediatelyfollowing the completion of


Name ofShareholder Nature of Interest Number

Percentage(approximately) Number

Percentage(approximately)

Mr. Wang Likai(王利凱)(2)(3)(4)(5)



HZ&BTDevelopmentHolding

Beneficial Owner 616,056(L) [REDACTED]% [REDACTED](L) [REDACTED]

Worldlink(6) Beneficial Owner 239,115(L) [REDACTED]% [REDACTED](L) [REDACTED]

Ms. Olive Chen(6) Interest in a controlledcorporation

239,115(L) [REDACTED]% [REDACTED](L) [REDACTED]

Notes:

1. The letter “L” denotes the shareholder’s long position in our Shares.

2. HuaZi Holding is beneficially and wholly owned by Mr. Wang. By virtue of the SFO, Mr. Wang is deemedto be interested in the Shares held by HuaZi Holding.

3. Pursuant to the Acting-in-concert Confirmation, Mr. Wang, Mr. Ye Kangshun (葉康舜), Mr. Wang Xiuchun(王秀春), Ms. Zhou Meng (周萌), Mr. Wang Shiqin (王士勤) and Mr. Wang Likai (王利凱) haveacknowledged and confirmed, among other things, that they are parties acting in concert (having themeaning as ascribed thereto in the Takeovers Code). As such, each of them is deemed to be interestedin each other’s interest in the Shares. For details of the Acting-in-concert Confirmation, please refer tothe paragraph headed “History, Reorganisation and Corporate Structure – Acting-in-concertConfirmation” in this document.

4. Ye Wang Zhou Holding is owned as to 46.76%, 32.40%, 8.10%, 7.34% and 5.40% by Mr. Ye Kangshun(葉康舜), Mr. Wang Xiuchun (王秀春), Ms. Zhou Meng (周萌), Mr. Wang Shiqin (王士勤) and Mr. WangLikai (王利凱), respectively.

5. By virtue of the Acting-in-concert Confirmation, each of Mr. Wang, Mr. Ye Kangshun (葉康舜), Mr. WangXiuchun (王秀春), Ms. Zhou Meng (周萌), Mr. Wang Shiqin (王士勤) and Mr. Wang Likai (王利凱) isdeemed to be interested in the Shares held by HuaZi Holding and Ye Wang Zhou Holding.

6. Worldlink is beneficially and wholly owned by Ms. Olive Chen. By virtue of the SFO, Ms. Olive Chen isdeemed to be interested in the Shares held by Worldlink.

7. Please refer to the chart regarding the shareholding structure of our Group upon completion of the[REDACTED] and the [REDACTED] in the section headed “History, Reorganisation and CorporateStructure” in this document for details of the shareholding of each of the Shareholders mentioned above.

Save as disclosed herein, our Directors are not aware of any person who will, immediatelyfollowing completion of the [REDACTED] and the [REDACTED], have an interest or a shortposition in Shares or underlying Shares which would be required to be disclosed to ourCompany and the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of theSFO, or, directly or indirectly, be interested in 10% or more of the nominal value of any classof share capital or shares carrying rights to vote in all circumstances at general meetings of ourCompany.


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SHARE CAPITAL

The following is a description of the authorised and issued share capital of our Company

in issue and to be issued as fully paid or credited as fully paid immediately before and following

the completion of the [REDACTED] and the [REDACTED] (assuming the [REDACTED] is not

exercised and without taking into account any Shares which may be issued pursuant to the

exercise of any options which may be granted under the Share Option Scheme):

Nominal

value

HK$

Authorised share capital:

10,000,000,000 Shares of par value of HK$0.01 each 100,000,000

Aggregate

Nominal

value

HK$

Issued and to be issued, fully paid or credited as fully paid upon completion of the

[REDACTED] and the [REDACTED]:

[REDACTED] Shares in issue as at the date of this document [REDACTED]

[REDACTED] Shares to be issued pursuant to the [REDACTED] [REDACTED]

[REDACTED] Shares to be issued under the [REDACTED] [REDACTED]

[REDACTED] Total [REDACTED]

ASSUMPTIONS

The above table assumes that the [REDACTED] becomes unconditional and the issue of

Shares pursuant to [REDACTED] and the [REDACTED] are made. It takes no account of any

Shares which may be allotted and issued pursuant to the exercise of the [REDACTED] or any

Shares which may be issued or repurchased by us pursuant to the general mandates granted

to our Directors to issue or repurchase Shares as described below.

SHARE CAPITAL

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MINIMUM PUBLIC FLOAT

Pursuant to Rule 8.08 of the Listing Rules, at least 25% of the total issued share capitalof our Company must at all times be held by the public. The [REDACTED] represent[REDACTED] of the issued share capital of our Company upon [REDACTED].

RANKING

The [REDACTED] will be ordinary shares in the share capital of our Company and willrank pari passu in all respects with all Shares in issue or to be issued as mentioned in thisdocument and, in particular, will qualify for all dividends or other distributions declared, madeor paid on our Shares in respect of a record date which falls after the date of this document,save for the entitlement under the [REDACTED].

SHARE OPTION SCHEME

Our Company has conditionally adopted the Share Option Scheme, the major terms ofwhich are set out in the section headed “Statutory and General Information – E. Share OptionScheme” in Appendix IV to this document.

[REDACTED]

Pursuant to the resolutions of our Shareholders passed on 19 October 2018, subject tothe share premium account of our Company being credited as a result of the allotment andissue of [REDACTED] by our Company pursuant to the [REDACTED], our Directors areauthorised to allot and issue a total of [REDACTED] Shares credited as fully paid at par, to theholder(s) of Shares on the register of members or the principal [REDACTED] of our Companyat the close of business on [REDACTED] (or as they may direct) in proportion to its/theirrespective shareholdings (save that no Shareholder shall be entitled to be allotted or issuedany fraction of a Share) by way of capitalisation of the sum of HK$[REDACTED] standing to thecredit of the share premium account of our Company. The Shares to be allotted and issuedpursuant to this resolution shall rank pari passu in all respects with the existing issued Shares.

GENERAL MANDATE TO ALLOT AND ISSUE NEW SHARES

Subject to the [REDACTED] becoming unconditional, our Directors have been granted ageneral mandate to allot, issue and deal with Shares in the share capital of our Company withan aggregate nominal value of not more than the sum of:

(1) 20% of the aggregate nominal amount of the share capital of our Company in issueimmediately following the completion of the [REDACTED] and the [REDACTED](excluding Shares which may be allotted and issued pursuant to the exercise of theOver-allotment); and

(2) the aggregate nominal amount of share capital of our Company repurchased by ourCompany (if any) pursuant to the general mandate to repurchase Shares granted toour Directors referred to below.

SHARE CAPITAL

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Our Directors may, in addition to our Shares which they are authorised to issue under this

general mandate, allot, issue or deal with Shares under a rights issue, scrip dividend scheme

or similar arrangement subject to applicable requirements including the Listing Rules.

This general mandate to issue Shares will expire at the earliest of (i) the conclusion of our

Company’s next annual general meeting; (ii) the date by which our Company’s next annual

general meeting is required by our Articles of Association or the Cayman Companies Law or

applicable laws in the Cayman Islands to be held; or (iii) such mandate being revoked or varied

by ordinary resolution of our Shareholders at a general meeting (the “Mandate Relevant

Period”).

Further information on this general mandate is set out in the section headed “Statutory

and General Information – A. Further information about our Group – 4. Written Resolutions of

our then Shareholders” in Appendix IV to this document.

GENERAL MANDATE TO REPURCHASE SHARES

Subject to the [REDACTED] becoming unconditional, our Directors have been granted a

general mandate to exercise all the powers of our Company to repurchase Shares with a total

nominal amount of not more than 10% of the total nominal amount of the share capital of our

Company in issue immediately following the completion of the [REDACTED] and the

[REDACTED] (excluding Shares which may be allotted and issued pursuant to the exercise of

the [REDACTED]).

This mandate only relates to repurchases made on the Stock Exchange or any other stock

exchange on which our Shares are listed (and which is recognised by the SFC and the Stock

Exchange for this purpose), and which are made in accordance with the Listing Rules. A

summary of the relevant Listing Rules is set out in the section headed “Statutory and General

Information – A. Further information about our Group – 6. Repurchase of our Company’s

Securities” in Appendix IV to this document.

This general mandate to repurchase Shares will expire at the earliest of (i) the conclusion

of our Company’s next annual general meeting; (ii) the date by which our Company’s next

annual general meeting is required by our Articles of Association or the Cayman Companies

Law or applicable laws in the Cayman Islands to be held; or (iii) such mandate being revoked

or varied by ordinary resolution of our Shareholders at a general meeting.

Further information on this general mandate is set out in the section headed “Statutory

and General Information – A. Further information about our Group – 4. Written resolutions of

our then Shareholders” in Appendix IV to this document.

SHARE CAPITAL

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CIRCUMSTANCES UNDER WHICH GENERAL MEETING AND CLASS MEETINGS ARE

REQUIRED

Our Company has only one class of shares, namely ordinary shares, each of which ranks

pari passu with the other shares.

Pursuant to the Cayman Companies Law and the terms of the Memorandum of

Association and the Articles of Association, our Company may from time to time by ordinary

resolution of shareholders (i) increase its capital; (ii) consolidate and divide its capital into

Shares of larger amount; (iii) subdivide its Shares into Shares of smaller amount; and (iv)

cancel any Shares which have not been taken. In addition, our Company may, subject to the

provisions of the Cayman Companies Law, reduce its share capital or capital redemption

reserve by its Shareholders passing special resolution. For further details, please refer to the

section headed “Summary of the Constitution of our Company and Cayman Islands Company

Law – Articles of Association – Alteration of capital” in Appendix III to this document.

Pursuant to the Cayman Companies Law and the terms of the Memorandum of

Association and the Articles of Association, all or any of the special rights attached to our

Shares or any class of our Shares may be varied, modified or abrogated either with the consent

in writing of the holders of not less than three-fourths in nominal value of the issued shares of

that class or with the sanction of a special resolution passed at a separate general meeting of

the holders of our Shares of that class. For further details, please refer to the section headed

“Summary of the Constitution of our Company and Cayman Islands Company Law – Articles of

Association – Variation of rights of existing shares or classes of shares” in Appendix III to this

document.

SHARE CAPITAL

– 298 –


You should read the following discussion and analysis in conjunction with our

combined financial information, including the accompanying notes thereto, set out

in Appendix I to this document. Our combined financial information has been

prepared in accordance with HKFRS. The following discussion and analysis

contains certain forward-looking statements that reflect our current views with

respect to future events and financial performance. These statements are based on

assumptions and analyses made by us in light of our experience and perception of

historical trends, current conditions and expected future developments, as well as

other factors we believe are appropriate under the circumstances. However,

whether actual outcomes and developments will meet our expectations and

predictions depend on a number of risks and uncertainties over which we do not

have control. Please also see the sections headed “Risk Factors” and “Forward-

looking Statements” in the document.

OVERVIEW





marine engineering business in the PRC. According to Frost & Sullivan, Chinese state-owned

enterprises account for over 90% of the market share of the PRC port, waterway and marine

engineering industry. We ranked ninth in the whole port, waterway and marine engineering

industry in the PRC and we were also the second largest port, waterway and marine

engineering company among all Chinese state-owned and non-state-owned companies in

Southeast Asia, both in terms of revenue in 2017.

We have been operating in core and specialised areas of the PRC port, waterway and

marine engineering industry, primarily focusing on port infrastructure and waterway

engineering. Throughout the years, we have gradually expanded our business into certain

regions in the PRC, including Yangtze River Delta, Pearl River Delta, central and northern

China. In 2016, we also became one of the pioneers in the PRC to set foot in Southeast Asia

by expanding our business into Brunei and Indonesia following China’s Belt and Road

Initiative. During the Track Record Period and up to the Latest Practicable Date, we had

completed 108 port infrastructure projects and 18 waterway engineering projects in the PRC.

As at the Latest Practicable Date, we had a total of 37 projects in progress in the PRC and

Southeast Asia, which represent projects awarded to us but have not yet been completed, with

a total contract value of approximately RMB3,221.4 million, and 11 projects on hand, which

represent projects awarded to us but have not yet been started, with a total contract value of

approximately RMB859.8 million.


30 April 2018, we recorded a total revenue of approximately RMB1,124.7 million, RMB1,263.8

million, RMB1,412 million and RMB268.5 million, respectively. Our net profit for the three

FINANCIAL INFORMATION

– 299 –


years ended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2018 was

approximately RMB63.8 million, RMB75 million, RMB87.3 million and RMB24.6 million,

respectively.

BASIS OF PRESENTATION

Immediately prior to our Reorganisation, our principal business was conducted through

Third Harbor Construction, Benteng Brunei and Benteng Indonesia, which were all beneficially

owned and controlled by our Controlling Shareholders. Our Company was incorporated as an

exempted company under the laws of the Cayman Islands with limited liability on 20 December

2017 and became the holding company for our subsidiaries comprising our Group following the

completion of our Reorganisation. Pursuant to our Reorganisation, our principal business was

transferred to and held by our Company. The Reorganisation is merely a reorganisation of our

Group’s business with no change in management of such business and Controlling

Shareholders remain the same.

Since our Reorganisation was completed after the end of the Track Record Period and

involved certain reporting entity acquiring equity interests in companies (including the

reporting entity) that are held under common control, the financial statements of our Group are

presented on a combined basis in accordance with the principles of the HKSIR 200,

“Accountants’ Reports on Historical Financial Information in Investment Circulars” issued by

HKICPA. Accordingly, the combined statements of comprehensive income, the combined

statements of cash flows and the combined statements of changes in equity of our Group for

the Track Record Period as set out in Appendix I to this document were prepared as if the

current group structure had been in existence throughout the Track Record Period. All

inter-company transactions, balances and unrealised gains/losses on transactions between

the companies now comprising our Group have been eliminated on combination.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Our results of operations have been and will continue to be affected by a number of

external factors, including the following:

Our performance is dependent on the general economic conditions and government

policies of the port, waterway and marine engineering industries in the PRC and

Southeast Asia

We derived a substantial portion of our revenue from the provision of port and waterway

engineering work and services in the PRC during the Track Record Period. For the three years

ended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2018, our

revenue generated from the provision of port and waterway engineering work and services in

the PRC was approximately RMB1,124.7 million, RMB1,171.6 million, RMB968.5 million and

RMB94.1 million, respectively, representing approximately 100%, 92.7%, 68.6% and 35.1% of

our total revenue for the same period, respectively. The demand for our port and waterway

engineering work and services is closely related to the level of government spending on


– 300 –


transportation infrastructure, in particular, spending related to the construction andimprovement of ports and waterways in the PRC, which in turn, largely depends on the PRCgeneral economic conditions and government policies. Any downturn in the PRC economyand/or changes of policies in the PRC port, waterway and marine engineering industry willaffect the number and/or value of the port infrastructure and waterway engineering projects inthe PRC, which may correspondingly reduce the demand for our work and services.

Moreover, following China’s Belt and Road Initiative, we expanded our business in Bruneiand Indonesia in 2016. For the two years ended 31 December 2016 and 2017 and the fourmonths ended 30 April 2018, our revenue generated from our business operation in SoutheastAsia was approximately RMB92.2 million, RMB443.5 million and RMB174.4 million,respectively, representing approximately 7.3%, 31.4% and 64.9% of our total revenue for thesame period, respectively. Although the emerging economies of Southeast Asia havedemonstrated a need for upgrading domestic port, waterway and marine engineeringinfrastructures and becoming more open to foreign investments, the nature, extent and timingof the port, waterway and marine engineering projects in Southeast Asia are determined by avariety of factors, including the general economic conditions and government policies of port,waterway and marine engineering industries in these Southeast Asian countries, and the PRCgovernment policies in relation to Southeast Asia, including the Chinese state-ownedenterprises’ spending on infrastructure and investments in overseas infrastructure projects,which are all subject to change. Unfavourable changes in these factors may result in asignificant decrease in the number of port, waterway and marine engineering projectsavailable in Southeast Asia in general, which may materially and adversely affect our resultsof operations and financial condition.

Our performance is subject to the number of port and waterway engineering projectsawarded to us by tenders and acceptable tender prices

During the Track Record Period, we obtained the majority of our projects through tenders.We typically prepare our tenders and determine the tender prices based on factors, such asthe scope of work and/or services to be provided, the port and waterway engineeringtechnologies and quality specifications, our construction equipment and vessels available,costs of raw materials and subcontracting, weather condition as well as the operational risksand length of the relevant projects. As we operate our business on a project-by-project basisand our customers may vary from year to year, our relationship with Chinese state-ownedenterprises and public and private companies, which are typically project owners and/or maincontractors, and our ability to compete for and secure sizeable and profitable projects arecrucial to our business operation and financial performance. Upon the completion of ourprojects on hand, in the event that we are unable to secure new projects or has notcommenced work on any of our existing projects, our business operation and financialcondition may be adversely and materially affected.

Our performance may be affected by competition in the markets in which we operate

We experience competition in the PRC and Southeast Asia markets in which we operate.Our competitors are mainly large state-owned enterprises in the PRC and public and private


– 301 –


international companies engaged in port, waterway and marine engineering business and

services. New players may also enter into the Southeast Asian markets if they possess

relevant industrial experience, advanced skills and technologies, construction equipment and

vessels and sufficient capital. If there is an increase in the number of competitors in the

industry and we are unable to maintain or enhance our competitiveness through pricing and/or

technology expertise, we may fail to secure new contracts from our existing customers or win

new customers, which may materially and adversely affect our business operation and

financial performance. Please also refer to the section headed “Risk Factors – Significant

competition in certain markets in which we operate can reduce our market share and may

materially and adversely affect our business, results of operations and financial condition” in

this document for further details.

Our financial performance is subject to timely settlement by our customers

We generally recognise our revenue from the provision of our port, waterway and marineengineering work and/or services upon completion of certain phases of a contract. We typicallysubmit work-in-progress applications to our customers on a monthly basis, which generallyinclude (i) our estimated value of work completed and costs of raw materials andsubcontracting consumed during the month between our previous and current monthly cut-offdates; and (ii) proposed payment amount to be settled by our customers based on suchestimated value of work and/or services completed and calculated at certain percentage inaccordance with the stipulated terms and conditions of the respective contracts. The monthlycut-off dates of such work-in-progress applications vary from project to project and are alsotypically specified in the contracts. As our projects usually take one to three years to complete,the number of projects and progress of each contract we undertake in any period may affectour results of operations and lead to fluctuations in revenue recognised from period to period.Further, our customers generally retain a retention money of 5% to 10% of the total projects’contract value, and will be released to us upon expiry of the defect liability period, which isnormally one to two years after the completion of our projects. In the event that our customersexperience financial distress or are unable to settle their payments due to us in a timelymanner or at all, our results of operations and financial condition may be materially andadversely affected.

During the Track Record Period, the ageing of our trade and retention receivables wasrelatively long, primarily due to our relatively longer receivable collection period as a result ofus having a diversified group of customers, the majority of which are subsidiaries or affiliatesof Chinese state-owned enterprises and public and/or private companies which are also thekey players in the PRC port, waterway and marine engineering industry. For more details,please refer to the section headed “Financial Information – Certain items of combinedstatements of financial position – Trade and other receivables” in this document.

Our performance is subject to fluctuation in our costs of raw materials andsubcontracting and our project team composition

The raw materials used in our port and waterway engineering projects mainly includecement, sand and rock, steel, tube piles and others. During the Track Record Period, wepurchased a portion of our raw materials from suppliers mainly in the PRC unless ourcustomers have specific requirements. We also subcontract some purchases of our rawmaterials, leasing of vessels and construction equipment, such as floating pile barges,


– 302 –


installation vessels and transporters, and various labour intensive construction and ancillarywork, such as concrete pouring and assembling reinforcement, to third-party subcontractors.For the three years ended 31 December 2015, 2016 and 2017 and the four months ended 30April 2018, our direct raw material purchases amounted to approximately RMB223.2 million,RMB395.6 million, RMB585.8 million and RMB149.9 million, representing 22.2%, 35%, 46.8%and 66.3% of our total cost of sales for the same period, respectively, and our subcontractingcosts amounted to approximately RMB737.4 million, RMB697 million, RMB600.8 million andRMB49.7 million, representing 73.4%, 61.6%, 48% and 22% of our total cost of sales for thesame period, respectively. If there are material changes on the availability and prices of ourkey raw materials and subcontracting services, our business operation and financial conditionmay be adversely affected.

Further, the profitability of our projects also depends, to a large extent, on the

composition and capabilities of our project team. We typically implement a two-tier

management structure for each of our project, with our project team consisting of our core

senior management team and key responsible persons from each functional department as

the first tier to overall plan and supervise our projects, and project managers and working

personnel designated for each of our projects as the second tier to be responsible for

day-to-day operations. If we fail to select the appropriate personnel with relevant expertise for

our projects, we will not be able to operate and execute our projects in an efficient and effective

manner, which in turn, will materially and adversely affect our results of operations and

profitability.

Our performance is subject to seasonality

As the majority of our port and waterway engineering work and services are performed

above or under the water, our work and services are affected by seasonal weather conditions.

For example, in northern China, we cannot conduct most of our port infrastructure and

waterway engineering work from January to March due to the cold weather. In Indonesia, we

may also need to plan our construction schedule ahead to avoid the monsoon rains season

and a consequent rise in the sea level which may impact the areas where our projects are

located. Further, we may also experience seasonal fluctuation in our revenue and operating

income in the first quarter of the year due to the holiday seasons, which in turn, reduce the

business activities and labour force in the market. As such, any comparisons of our operating

results between different periods within a single financial year are not necessarily meaningful

and cannot be relied on as indicators of our performance. Our results of operations are likely

to continue to fluctuate due to seasonality.

SIGNIFICANT ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES

We have identified certain accounting policies that are significant to the preparation of our

combined financial statements. We have also made certain accounting judgements and

assumptions in the process of applying our accounting policies. When reviewing our combined

financial statements, you should consider (i) our selection of critical accounting policies; (ii)

the judgement and assumptions affecting the application of such policies; and (iii) the

sensitivity or reported results to change in conditions and assumptions. We set out below


– 303 –


those accounting judgement and estimates used in the preparation of our combined financial

statements. Our significant accounting policies, estimates and judgements, which are

important for an understanding of our financial position and results of operations, are more

detailed set out in Notes 2 and 4 to our accountant’s report in Appendix I to this document.

Adoption of HKFRS 9 and HKFRS 15

We have adopted full retrospective application of HKFRS 9 and HKFRS 15, which had

been consistently applied in the Track Record Period. We have also assessed the effects of

the adoption of HKFRS 9 and HKFRS 15 in our financial statements and identified the following

areas that have been affected:

• Impairment calculation. The new impairment model under HKFRS 9 requires the

recognition of impairment provisions based on expected credit losses (ECL) rather

than only incurred credit losses as is the case under HKAS 39. As at 31 December

2015, 2016, 2017 and 30 April 2018, there was more provision for impairment

balance of RMB3,772,000, RMB2,169,000, RMB4,549,000 and RMB4,776,000,

respectively, in the combined financial position, as compared with the provision

balances measured under HKAS 39.

• We adopt output method to measure revenue under both HKAS 11 and HKFRS 15.

Accordingly, the net profit and loss effect on the application of HKFRS 15 is not

material. In respect of presentation of contract assets and contract liabilities in the

combined financial position, HKFRS 15 requires separate presentation of contract

assets and contract liabilities in the combined financial position. This has resulted in

some reclassifications in relation to our unsatisfied performance obligations and

unbilled revenue for work performed. As at 31 December 2015, 2016, 2017 and 30

April 2018, (i) contract liabilities of RMB74,051,000, RMB14,339,000,

RMB23,683,000 and RMB30,288,000, respectively, would have been presented as

amounts due to contract customers; (ii) current contract assets of RMB93,175,000,

RMB169,581,000, RMB138,005,000 and RMB160,088,000, respectively, would

have been presented as current amounts due from contract customers; and (iii)

non-current contract assets of RMB248,187,000, RMB222,662,000,

RMB97,085,000 and RMB96,325,000, respectively, would have been presented as

non-current amounts due from contract customers, should HKAS 11 have been

applied throughout the Track Record Period.

Taking into account the impact set out above, we consider that the adoption of these

standards did not have any significant impact on our combined financial position and

performance during the Track Record Period.


– 304 –


RESULTS OF OPERATIONS

The following table sets forth selected items of our statements of comprehensive income

for the periods indicated:

Year ended 31 December

Four months ended

30 April

2015 2016 2017 2017 2018


(Unaudited)

Revenue . . . . . . . . . . . . . . . 1,124,654 1,263,785 1,411,968 217,876 268,548Cost of sales . . . . . . . . . . . . (1,004,712) (1,130,746) (1,252,831) (189,991) (226,261)

Gross profit . . . . . . . . . . . . 119,942 133,039 159,137 27,885 42,287Selling and distribution

expenses . . . . . . . . . . . . . (3,496) (2,431) (2,184) (872) (710)Administrative expenses . . . . (26,148) (27,113) (44,191) (8,778) (12,349)Other operating expense . . . . – – (437) – (37)Other income . . . . . . . . . . . . – – 2,401 – 818Other gains/(losses) – net . . . 137 15 539 (648) (830)

Operating profit . . . . . . . . . . 90,435 103,510 115,265 17,587 29,179Finance costs . . . . . . . . . . . . (5,724) (3,271) (2,543) (1,034) (131)Finance income. . . . . . . . . . . 154 50 391 64 911Share of net profit of

associates . . . . . . . . . . . . . 291 333 173 33 –

Profit before income tax . . . . 85,156 100,622 113,286 16,650 29,959Income tax expense. . . . . . . . (21,405) (25,659) (26,012) (3,891) (5,345)

Profit for the year/period . . . 63,751 74,963 87,274 12,759 24,614

Total comprehensive

income for the year/period

attributable to owners of

our Company . . . . . . . . . . 63,751 74,845 87,101 12,698 23,170


– 305 –


PRINCIPAL INCOME STATEMENT COMPONENTS

Revenue

During the Track Record Period, we primarily focused on and generated our revenue from

the provision of port infrastructure and waterway engineering work and/or services in the PRC

and Southeast Asia. Our port infrastructure work primarily includes wharf construction. We

also conduct a small portion of other port infrastructure work, such as breakwater and

revetment construction and land yard construction. Our waterway engineering work primarily

includes waterway dredging and improvement and land reclamation.

The table below sets out our revenue by our core business segment for the periods

indicated:


2015 2016 2017 2017 2018

RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue RMB’000

% of

total

revenue

(Unaudited)

Port infrastructure . . . 931,387 82.8 925,471 73.2 1,362,268 96.5 217,876 100.0 264,166 98.4– The PRC . . . . . . 931,387 82.8 833,246 65.9 918,785 65.1 139,788 64.2 89,750 33.5– Southeast Asia . . . – – 92,225 7.3 443,483 31.4 78,088 35.8 174,416 64.9

Waterway

engineering(1) . . . . . 193,267 17.2 338,314 26.8 49,700 3.5 – – 4,382 1.6

Total: . . . . . . . . . . 1,124,654 100.0 1,263,785 100.0 1,411,968 100.0 217,876 100.0 268,548 100.0

Note:



– 306 –


As part of our development strategy to differentiate our competitive advantage againstlarge-scale state-owned port, waterway and marine engineering companies in the PRC, webecame one of the pioneers in the PRC to set foot in Southeast Asia by expanding ourbusiness in Brunei and Indonesia in 2016, following China’s Belt and Road Initiative. Webelieve that the introduction of China’s Belt and Road Initiative has provided us withtremendous business opportunities in the Southeast Asia’s port infrastructure market.Furthermore, by leveraging our existing diversified and extensive experience gained overvarious significant port, waterway and marine engineering projects in the PRC and full rangeof construction equipment and vessels, we have benefited from the increasing port, waterwayand marine engineering projects in the Southeast Asian countries carried out by our existingreputable and loyal customers, which are mainly the major Chinese state-owned enterprisesand public and private companies, and at the same time, we can also gain new local customersin the Southeast Asian markets.

Our revenue derived from our business operation in Southeast Asia increased rapidlyduring the Track Record Period due to our successful implementation of the developmentstrategy. In addition, recognition of our revenue is largely depending on the progress/phase ofour projects. As such, our revenue recognised in the PRC or Southeast Asia for a particularperiod of time during the Track Record Period fluctuated depending on the amount of workand/or services conducted/completed by us under certain phases of our projects in theseregions during a particular period of time. The table below sets out our revenue by geographiclocation for the periods indicated:


2015 2016 2017 2017 2018

RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue RMB’000

% oftotal

revenue

(Unaudited)

The PRC. . . . . . . . . 1,124,654 100.0 1,171,560 92.7 968,485 68.6 139,788 64.2 94,132 35.1Southeast Asia . . . . . – – 92,225 7.3 443,483 31.4 78,088 35.8 174,416 64.9

– Brunei . . . . . . . . – – 92,225 7.3 384,957 27.3 71,184 32.7 162,669 60.5– Indonesia . . . . . . – – – – 58,526 4.1 6,904 3.1 11,747 4.4

Total: . . . . . . . . . . 1,124,654 100.0 1,263,785 100.0 1,411,968 100.0 217,876 100.0 268,548 100.0

We generally recognise our revenue from the provision of our port and waterwayengineering work and/or services upon completion of certain phases of a contract. We typicallysubmit work-in-progress applications to our customers on a monthly basis, which generallyinclude (i) our estimated value of work and/or services completed during the month betweenour previous and current monthly cut-off dates; and (ii) proposed payment amount to be settledby our customers based on such estimated value of work and/or services completed andcalculated at certain percentage in accordance with the stipulated terms and conditions of therespective contracts. The monthly cut-off dates of such work-in-progress applications varyfrom project to project and are also typically specified in the contracts. Typically, theauthorised personnel employed by our customers will review our work-in-progress


– 307 –


applications, and inspect and certify the value of the work and/or services completed by usduring such month. Once our customers agree with our work-in-progress applications, they willarrange payment in accordance with the payment amount in our work-in-progress applicationswithin a specified period of time according to the terms specified in the contracts.

During the Track Record Period, ageing of our trade and retention receivables wasrelatively long, primarily due to our relatively longer receivable collection period as a result ofus having a diversified group of customers, the majority of which are subsidiaries or affiliatesof Chinese state-owned enterprises and public and/or private companies which are also thekey players in the PRC port, waterway and marine engineering industry. These customerstypically have solid background and financial conditions, good reputation, credibility andpayment records and did not encounter any financial difficulties resulting in failed paymentobligations. As confirmed by Frost & Sullivan, it is the industrial norm for non-state-ownedcompanies engaged in our industry to have relatively longer receivable collection period. Formore details of our trade and retention receivables, please refer to the section headed“Financial Information – Certain items of combined statements of financial position – Tradeand other receivables” in this document.

Port infrastructure is our largest business segment while wharf construction has been our

main business focus since our establishment. For the three years ended 31 December 2015,

2016 and 2017 and the four months ended 30 April 2018, revenue generated from our port

infrastructure business segment amounted to approximately RMB931.4 million, RMB925.5

million, RMB1,362.3 million and RMB264.2 million, respectively, representing approximately

82.8%, 73.2%, 96.5% and 98.4% of our total revenue for the same period, respectively. The

decrease in revenue of our port infrastructure business segment for the year ended 31

December 2016 was primarily due to the decrease in revenue of our port infrastructure

business segment in the PRC for the year ended 31 December 2016 as a result of us

completing a number of wharf construction projects in the PRC in 2015, such as Shengsi

County Shenjiawan Passenger Transportation Centre Phase II Project and Maanshan Gang

Cihu Integrated Port Number One Tenders, and our focus on developing our business in

Southeast Asia. The increases in revenue of our port infrastructure business segment for the

year ended 31 December 2017 and the four months ended 30 April 2018 as compared to the

same for the four months ended 30 April 2017 were primarily due to the increase in revenue of

our port infrastructure business segment in Southeast Asia as a result of us realising more

revenue from our Brunei Concrete Engineering Project, which was partially offset by the

decrease in revenue of our port infrastructure business segment in the PRC as a result of us

completing a number of large wharf construction projects in the PRC in 2017, such as, Hainan

Wanning Riyue Bay Artificial Island – Hydraulic Main Works of the Sea Reclamation Project on

the Yue Island and Xiamen Zhong Ao Yacht Basin Project. According to Frost & Sullivan, we

were the second largest port, waterway and marine engineering company among all Chinese

state-owned enterprise and private companies in Southeast Asia in terms of revenue in 2017.

During the Track Record Period, in Southeast Asia, we had only conducted port infrastructure

work and/or services.


– 308 –


Waterway engineering is our other business segment. For the three years ended

31 December 2015, 2016 and 2017 and the four months ended 30 April 2018, our revenue

generated from our waterway engineering business segment amounted to approximately

RMB193.3 million, RMB338.3 million, RMB49.7 million and RMB4.4 million, respectively,

representing approximately 17.2%, 26.8%, 3.5% and 1.6% of our total revenue for the same

period, respectively. The increase in revenue of our waterway engineering business segment

for the year ended 31 December 2016 was primarily due to our completion of a large waterway

engineering project in 2016. The decrease in revenue of our waterway engineering business

segment for the year ended 31 December 2017 was primarily due to the decrease in our

waterway engineering projects in such year as result of our focus on developing our business

in Southeast Asia. We only realised revenue of approximately RMB4.4 million for one of our

waterway engineering projects for the four months ended 30 April 2018. During the Track

Record Period, we had only conducted waterway engineering work and/or services in the

PRC.

Cost of sales

Our cost of sales primarily consists of our costs of raw materials and consumables used,

subcontracting, direct labour and depreciation of property, plant and equipment. The following

table sets out a breakdown of our cost of sales for the periods indicated:


2015 2016 2017 2017 2018

RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales

(Unaudited)

Raw materials and

consumables used . . 223,221 22.2 395,643 35.0 585,848 46.8 99,330 52.3 149,906 66.3Subcontracting costs . . 737,406 73.4 696,999 61.6 600,797 48.0 70,175 36.9 49,739 22.0Direct labour. . . . . . . 19,126 1.9 16,391 1.4 20,362 1.6 8,943 4.7 6,917 3.1Depreciation of

property, plant and

equipment . . . . . . 4,399 0.4 4,893 0.4 8,326 0.7 2,381 1.3 3,177 1.4Others(1) . . . . . . . . . 20,560 2.1 16,820 1.6 37,498 2.9 9,162 4.8 16,522 7.2

Total: . . . . . . . . . . 1,004,712 100.0 1,130,746 100.0 1,252,831 100.0 189,991 100.0 226,261 100.0

Note:

1. Others primarily included taxes and surcharges, operating lease payments for tugs and other leasing vesselsand construction equipment, utilities, testing expenses and other expenses.


– 309 –


Our cost of raw materials and consumables used had steadily increased during the Track

Record Period, and was the second largest component of our cost of sales for the three years

ended 31 December 2015, 2016 and 2017 and the largest component of our cost of sales for

the four months ended 30 April 2018, representing approximately 22.2%, 35%, 46.8% and

66.3% of our total cost of sales for the three years ended 31 December 2015, 2016 and 2017

and the four months ended 30 April 2018, respectively. The raw materials and other

consumables used in our port and waterway engineering projects mainly include cement, sand

and rock, steel, tube piles and others. Depending on the location of our port and waterway

engineering projects, we typically purchase raw materials from the local suppliers. Our cost of

raw materials and consumables used had increased during the Track Record Period, primarily

as a result of our increased purchases of raw materials for our port infrastructure projects in

Southeast Asia. The increase in our cost of raw materials and consumables used for the year

ended 31 December 2017 was also due to our increased purchases of raw materials as a result

of the new VAT scheme adopted in 2016 in the PRC, under which we are able to claim input

VAT credits for purchases of raw materials that have not been previously available before the

new VAT scheme. Our increased purchases of raw materials during the Track Record Period

have also helped us to increase our bargaining power with our raw material suppliers in terms

of pricing.

Our subcontracting cost was the largest component of our cost of sales for the three years

ended 31 December 2015, 2016 and 2017 and the second largest component of our cost of

sales for the four months ended 30 April 2018, representing approximately 73.4%, 61.6%, 48%

and 22% of our total cost of sales for the three years ended 31 December 2015, 2016 and 2017

and the four months ended 30 April 2018, respectively. During the Track Record Period, we

had subcontracted some purchases of our raw materials, leasing of vessels and construction

equipment, such as floating pile barge, installation vessel and dredger, and various labour

intensive construction and ancillary work, such as concrete pouring and assembling

reinforcement, to third-party subcontractors. Our engagement of subcontractors depends on

our project needs, which varied from project to project. In addition, as we had performed the

majority of our port infrastructure work and/or services in Southeast Asia by ourselves instead

of engaging subcontractors during the Track Record Period, our subcontracting costs

gradually decreased during the Track Record Period.

Direct labour was the third component of our cost of sales during the Track Record

Period, representing approximately 1.9%, 1.4%, 1.6% and 3.1% of our total cost of sales for

the three years ended 31 December 2015, 2016 and 2017 and the four months ended 30 April

2018, respectively. Our cost of direct labour during the Track Record Period was primarily

affected by the number of staff engaged in the project operation as a result of the demand of

our port and waterway engineering work and/or services, and the general increase of salaries

and benefits for our staff in the PRC and the general higher level of the salaries and benefits

for our staff in Southeast Asia.


– 310 –


During the Track Record Period, our cost of sales by our core business segments, which

are port infrastructure and waterway engineering, as a percentage of our total cost of sales

was largely in line with their respective percentage contribution to our revenue. The following

table sets out our cost of sales by our core business segment for the periods indicated:


2015 2016 2017 2017 2018

RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales

(Unaudited)

Port infrastructure . . . . 825,554 82.2 810,693 71.7 1,206,721 96.3 189,991 100.0 222,111 98.2– The PRC . . . . . . 825,554 82.2 716,788 63.4 828,775 66.1 124,387 65.5 77,443 34.3– Southeast Asia . . . – – 93,905 8.3 377,946 30.2 65,604 34.5 144,668 63.9

Waterway engineering . 179,158 17.8 320,053 28.3 46,110 3.7 – – 4,150 1.8

Total: . . . . . . . . . . 1,004,712 100.0 1,130,746 100.0 1,252,831 100.0 189,991 100.0 226,261 100.0

The following table sets out our cost of sales by geographic location for the periods

indicated:


2015 2016 2017 2017 2018

RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales RMB’000

% of

total

cost of

sales

(Unaudited)

The PRC. . . . . . . . . 1,004,712 100.0 1,036,841 91.7 874,885 69.8 124,387 65.5 81,593 36.1Southeast Asia . . . . . – – 93,905 8.3 377,946 30.2 65,604 34.5 144,668 63.9

– Brunei . . . . . . . . – – 93,905 8.3 338,025 27.0 59,726 31.4 136,573 60.4– Indonesia . . . . . . – – – – 39,921 3.2 5,878 3.1 8,095 3.5

Total: . . . . . . . . . . 1,004,712 100.0 1,130,746 100.0 1,252,831 100.0 189,991 100.0 226,261 100.0


– 311 –


For illustration purpose only, we set out below a sensitivity analysis of our profit before

income tax for the year with reference to the fluctuation of our costs of subcontracting and raw

materials and consumable used during the Track Record Period, respectively. The following

tables demonstrate the impact of the hypothetical increase or decrease in the costs of our

subcontracting and raw materials and consumable used in calculating our profit before income

tax for the year, respectively, while all other factors remain unchanged:

Sensitivity analysis on costs of our subcontracting

Hypothetical

increase/

decrease

of 2%

Hypothetical

increase/

decrease

of 4%

Hypothetical

increase/

decrease

of 6%

RMB’000 RMB’000 RMB’000

(Decrease)/Increase in profit before income tax

for the year/period:Year ended 31 December 2015 . . . . . . . . . . . . . -/+14,748 -/+29,496 -/+44,244Year ended 31 December 2016 . . . . . . . . . . . . . -/+13,940 -/+27,880 -/+41,820Year ended 31 December 2017 . . . . . . . . . . . . . -/+12,016 -/+24,032 -/+36,048Four months ended 30 April 2018 . . . . . . . . . . . . -/+995 -/+1,990 -/+2,984

Note: During the Track Record Period, our engagement of subcontracts depended on our project needs, whichvaried from project to project. As such, our Directors are of the view that it is prudent to use 2%, 4% and 6%in the above sensitivity analysis.

Sensitivity analysis on costs of our raw materials and consumable used

Hypothetical

increase/

decrease

of 3%

Hypothetical

increase/

decrease

of 5%

Hypothetical

increase/

decrease

of 8%

RMB’000 RMB’000 RMB’000

(Decrease)/Increase in profit before income tax

for the year/period:Year ended 31 December 2015 . . . . . . . . . . . . . -/+6,697 -/+11,161 -/+17,858Year ended 31 December 2016 . . . . . . . . . . . . . -/+11,869 -/+19,782 -/+31,651Year ended 31 December 2017 . . . . . . . . . . . . . -/+17,575 -/+29,292 -/+46,868Four months ended 30 April 2018 . . . . . . . . . . . . -/+4,497 -/+7,495 -/+11,992

Note: During the Track Record Period, we were typically allowed to adjust our contract unit prices if we experiencedmajor raw material price fluctuation that is generally determined by the relevant raw material market. As such,our Directors are of the view that it is prudent to use 3%, 5% and 8% in the above sensitivity analysis.


– 312 –


Gross profit and gross profit margin

The following table sets out the gross profit and gross profit margin by our core business

segment for the periods indicated:


2015 2016 2017 2017 2018

Gross

profit

Gross

profit

margin

Gross

profit/

(loss)

Gross

profit/

(loss)

margin

Gross

profit

Gross

profit

margin

Gross

profit

Gross

profit

margin

Gross

profit

Gross

profit

margin


(Unaudited)

Port infrastructure . . . . 105,833 11.4 114,778 12.4 155,547 11.4 27,885 12.8 42,055 15.9– The PRC . . . . . . 105,833 11.4 116,458 14.0 90,010 9.8 15,401 11.0 12,307 13.7– Southeast Asia . . . – – (1,680) (1.8) 65,537 14.8 12,484 16.0 29,748 17.1

Waterway engineering . 14,109 7.3 18,261 5.4 3,590 7.2 – – 232 5.3

Total: . . . . . . . . . . 119,942 10.7 133,039 10.5 159,137 11.3 27,885 12.8 42,287 15.7

The following table sets out the gross profit and gross profit margin by geographic

location for the periods indicated:


2015 2016 2017 2017 2018

Gross

profit

Gross

profit

margin

Gross

profit/

(loss)

Gross

profit/

(loss)

margin

Gross

profit

Gross

profit

margin

Gross

profit

Gross

profit

margin

Gross

profit

Gross

profit

margin


(Unaudited)

The PRC. . . . . . . . . 119,942 10.7 134,719 11.5 93,600 9.7 15,401 11.0 12,539 13.3Southeast Asia . . . . . – – (1,680) (1.8) 65,537 14.8 12,484 16.0 29,748 17.1

– Brunei . . . . . . . . – – (1,680) (1.8) 46,932 12.2 11,458 16.1 26,096 16.0– Indonesia . . . . . . – – – – 18,605 31.8 1,026 14.9 3,652 31.1

Total . . . . . . . . . . . 119,942 10.7 133,039 10.5 159,137 11.3 27,885 12.8 42,287 15.7


– 313 –


For the three years ended 31 December 2015, 2016 and 2017 and the four months ended30 April 2018, our gross profit was approximately RMB119.9 million, RMB133 million,RMB159.1 million and RMB42.3 million, respectively. Our gross profit steadily increased forthe three years ended 31 December 2015, 2016 and 2017 and the four months ended 30 April2018 as compared to the same for the four months ended 30 April 2017, primarily due to ourbusiness expansion in Southeast Asia. For the three years ended 31 December 2015, 2016and 2017 and the four months ended 30 April 2018, our gross profit margin was approximately10.7%, 10.5%, 11.3% and 15.7%, respectively, which generally increased.

For our port and waterway engineering projects, we typically negotiate the contract unitprice of each of our work and/or service items to be provided under a project, which are agreedby our customers and specified in the contracts. As such, we may record different gross profitmargin for projects in different financial year/period. Nevertheless, we were able to achieve ageneral increase in our overall gross profit and gross profit margin during the Track RecordPeriod.

Selling and distribution expenses

Our selling and distribution expenses primarily consisted of salaries and benefits for oursales personnel and other expenses, such as travelling and transportation expenses,marketing, communication and office utility expenses. For the three years ended 31 December2015, 2016 and 2017 and the four months ended 30 April 2018, our selling and distributionexpenses were approximately RMB3.5 million, RMB2.4 million, RMB2.2 million and RMB0.7million, respectively, representing approximately 0.3%, 0.2%, 0.2% and 0.3% of our totalrevenue for the same period, respectively.

The following table sets out a breakdown of our selling and distribution expenses for the

periods indicated:


2015 2016 2017 2017 2018

RMB’000

% of total

selling and

distribution

expenses RMB’000

% of total

selling and

distribution

expenses RMB’000

% of total

selling and

distribution

expenses RMB’000

% of total

selling and

distribution

expenses RMB’000

% of total

selling and

distribution

expenses

(Unaudited)

Staff salaries and

benefits . . . . 1,856 53.1 1,451 59.7 1,642 75.2 822 94.3 673 94.8Others(1) . . . . . 1,640 46.9 980 40.3 542 24.8 50 5.7 37 5.2

Total: . . . . . . 3,496 100.0 2,431 100.0 2,184 100.0 872 100.0 710 100.0

Note:

1. Others primarily included travelling and transportation expenses, marketing, communication and office utility

expenses.


– 314 –


Administrative expenses

Our administrative expenses primarily consist of salaries and welfare for our

management, provision for impairment and write-off of receivables, entertainment expenses,

transportation expenses, [REDACTED] and other expenses. For more details of our provision

for impairment and write-off of receivables, please refer to the section headed “Financial

Information – Certain items of combined statements of financial position – Trade and other

receivables” in this document. For the three years ended 31 December 2015, 2016 and 2017

and the four months ended 30 April 2018, our administrative expenses were approximately

RMB26.1 million, RMB27.1 million, RMB44.2 million and RMB12.3 million, respectively,

representing approximately 2.3%, 2.1%, 3.1% and 4.6% of our total revenue for the same

period, respectively. Our administrative expenses increased during the Track Record Period,

primarily the result of our increased staff salaries and benefits for our management personnel

and other general administrative expenses in Southeast Asia, if we took no account of the

effect of our [REDACTED] incurred. The following table sets out a breakdown of our

administrative expenses for the periods indicated:


2015 2016 2017 2017 2018

RMB’000

% of total

administrative

expenses RMB’000

% of total

administrative

expenses RMB’000

% of total

administrative

expenses RMB’000

% of total

administrative

expenses RMB’000

% of total

administrative

expenses

(Unaudited)

Staff salaries and

benefits . . . . . 10,283 39.3 11,840 43.7 16,246 36.8 3,973 45.3 4,441 36.0Provision for

impairment and

write-off of

receivables . . . 5,948 22.7 1,625 6.0 5,713 12.9 876 10.0 782 6.3Transportation

expenses . . . . 5,944 22.7 3,942 14.5 2,778 6.3 1,050 12.0 1,034 8.4Entertainment

expenses . . . . 1,408 5.4 1,713 6.3 2,300 5.2 475 5.4 64 0.5[REDACTED] . . . – – – – 4,559 10.3 – – 3,449 27.9Others(1) . . . . . 2,565 9.9 7,993 29.5 12,595 28.5 2,404 27.3 2,579 20.9

Total: . . . . . . . 26,148 100.0 27,113 100.0 44,191 100.0 8,778 100.0 12,349 100.0

Note:

1. Others primarily included transportation and depreciation and amortisation expenses, valuation expenses andconsulting fees.


– 315 –


Other gains/(losses) – net

Our other gains/(losses) consisted of net gains on our disposal of property, plant andequipment, our net foreign exchange gains or losses and losses on disposal of investment inan associate. The following table sets out a breakdown of our other gains/(losses) for theperiods indicated:


Four months ended

30 April

2015 2016 2017 2017 2018


(Unaudited)

Net gains on disposal of

property,

plant and equipment . . . – 167 332 27 –Net foreign exchange

gains/(losses) . . . . . . . . 137 (152) 380 (675) (830)Losses on disposal of

investment in

associates . . . . . . . . . . . – – (173) – –

Total: . . . . . . . . . . . . . . . . . 137 15 539 (648) (830)

Other income and other operating expenses

Our other income primarily consisted of rental income from leasing our constructionequipment in the PRC and the sales of our spare raw materials in Brunei, both to other thirdparties. Our other operating expenses primarily consisted of our purchase cost of rawmaterials that were sold to other third parties in Brunei. We only realised other income ofapproximately RMB2.4 million and RMB0.8 million and other operating expenses ofapproximately RMB0.4 million and RMB37,000 for the year ended 31 December 2017 and thefour months ended 30 April 2018, respectively.

Finance costs and income

Our finance costs consisted of our unwinding of discount of long-term payables. Thefinancial cost of unwinding of discount of long-term payables is measured using the effectiveinterest rate of the long-term payables. Our finance income represented our interest incomemainly derived from our cash at bank. For the three years ended 31 December 2015, 2016 and2017 and the four months ended 30 April 2018, our finance costs amounted to approximatelyRMB5.7 million, RMB3.3 million, RMB2.5 million and RMB0.1 million, respectively, and ourfinance income amounted to approximately RMB0.2 million, RMB50,000, RMB0.4 million andRMB0.9 million, respectively.


– 316 –


Share of net profit of associates

Our Group realised interests in two private companies prior to the Reorganisation of

approximately RMB0.3 million, RMB0.3 million and RMB0.2 million for the three years ended

31 December 2015, 2016 and 2017, respectively, which were immaterial in the opinion of our

Directors. There was no quoted market price available for their shares nor contingent liabilities

relating to our Group’s interest in the associates. Please also refer to the section headed

“History, Reorganisation and Corporate Structure – Corporate and business development

history – Major disposals of equity interest in companies during the Track Record Period” in

and Note 14b to our accountant’s report in Appendix I to this document for more details.

Income tax expense

Income tax consists of current income tax and deferred income tax by our Group. Our

income tax expenses for the three years ended 31 December 2015, 2016 and 2017 and the

four months ended 30 April 2018 were approximately RMB21.4 million, RMB25.7 million,

RMB26 million and RMB5.3 million, respectively.

Our current income tax in the PRC comprises primarily PRC corporate income tax by our

PRC subsidiaries. Under the EIT Law, our subsidiaries in the PRC are subject to PRC income

tax at the statutory PRC corporate income tax rate of 25%.

Under the relevant rules and regulations of the Cayman Islands and BVI, we are not

subject to any income tax in the Cayman Islands and BVI. Under the Hong Kong law, Royal

Karry is subject to Hong Kong income tax at the statutory Hong Kong profits tax of 16.5%. As

we incorporated Royal Karry in February 2018, we were not subject to any tax in Hong Kong

prior to February 2018.

We incorporated Benteng Brunei in January 2016, which is subject to Brunei income tax

of 18.5% under the laws of Brunei. We incorporated Benteng Indonesia in September 2016.

Under the laws of Indonesia, income tax is charged through a withholding system, and is

withheld on service fees in relation to construction work and bank deposit interests. For the

Track Record Period, Benteng Indonesia was subject to income tax on revenue in relation to

its port and waterway engineering construction work and/or services (the “construction

revenue”). Income tax has been charged at the rate of 4% on the construction revenue before

31 October 2017 and 3% on the construction revenue for the two months ended 31 December

2017 and the four months ended 30 April 2018. Income tax has been charged at the rate of

20% on the interest income from bank deposits of Benteng Indonesia. Our tax adviser is of the

view that there is no material tax non-compliance in relation to our Benteng Brunei and

Benteng Indonesia.

Please also refer to Note 11 to our accountant’s report in Appendix I to this document for

a more detailed discussion on our income tax.


– 317 –


PERIOD TO PERIOD COMPARISON OF RESULTS OF OPERATIONS

Four months ended 30 April 2018 compared with four months ended 30 April 2017

Revenue

Our revenue increased by approximately 23.3% from approximately RMB217.9 million for

the four months ended 30 April 2017 to approximately RMB268.5 million for the four months

ended 30 April 2018, primarily due to the increase in revenue of our port infrastructure

business segment as a result of our business expansion in Southeast Asia.

The revenue of our port infrastructure business segment increased by approximately

21.2% from approximately RMB217.9 million for the four months ended 30 April 2017 to

approximately RMB264.2 million for the four months ended 30 April 2018. Such increase was

primarily due to the increase in revenue of our port infrastructure business in Southeast Asia

by approximately 123.4% from approximately RMB78.1 million to approximately RMB174.4

million for the same period, as a result of our focus on developing business in Southeast Asia,

especially in Brunei. Our revenue derived from our business operation in Brunei increased by

approximately 128.5% from approximately RMB71.2 million to approximately RMB162.7

million for the same period, primarily due to our Brunei Concrete Engineering Project, which

we recognised revenue of approximately RMB120.5 million for the four months ended 30 April

2018. Our revenue derived from our business operation in Indonesia also increased by

approximately 70.1% from approximately RMB6.9 million to approximately RMB11.7 million

for the same period, primarily due to our Indonesia Conch Cement Limited with Clinker

Production Line Special Port Project.

The increase in our revenue was partially offset by the decrease in our revenue in the

PRC by approximately 32.7% from approximately RMB139.8 million for the four months ended

30 April 2017 to approximately RMB94.1 million for the four months ended 30 April 2018, which

was attributable to the decrease in revenue of our port infrastructure business segment in the

PRC by approximately 35.8% from approximately RMB139.8 million to approximately

RMB89.8 million for the same period. Such decrease was primarily due to our focus on

developing business in Southeast Asia, and our completion of two wharf construction projects

in 2017, namely, Hainan Wanning Riyue Bay Artificial Island – Hydraulic Main Works of the

Sea Reclamation Project on the Yue Island, from which we realised revenue of approximately

RMB307.6 million, and Xiamen Zhong Ao Yacht Basin Project, from which we realised revenue

of approximately RMB216.4 million, both for the year ended 31 December 2017.

We did not record revenue for our waterway engineering business segment for the four

months ended 30 April 2017 and we only recorded revenue of approximately RMB4.4 million

for one of our waterway engineering projects for the four months ended 30 April 2018.


– 318 –


Cost of sales

Our cost of sales increased by approximately 19.1% from approximately RMB190 million

for the four months ended 30 April 2017 to approximately RMB226.3 million for the four months

ended 30 April 2018. Such increase was primarily attributable to the increase in our raw

materials and other consumables used by approximately 50.9% from approximately RMB99.3

million for the four months ended 30 April 2017 to approximately RMB149.9 million for the four

months ended 30 April 2018, primarily due to our increased raw materials and other

consumables consumed for our port infrastructure projects in Brunei and Indonesia as a result

of our new business expansion in Southeast Asia. Correspondingly, our cost of sales in

Southeast Asia also increased from approximately RMB65.6 million to approximately

RMB144.7 million for the same period. The increase in our cost of sales for the four months

ended 30 April 2018 was partially offset by the decrease in our subcontracting costs from

approximately RMB70.2 million to approximately RMB49.7 million for the same period,

primarily due to the result that we had performed the majority of our port infrastructure work

and/or services in Southeast Asia by ourselves instead of engaging subcontractors during the

Track Record Period.


Our overall gross profit increased by approximately 51.6% from approximately RMB27.9


months ended 30 April 2018, while our overall gross profit margin also increased from

approximately 12.8% to approximately 15.7% for the same period.

The increase in our gross profit for the four months ended 30 April 2018 was primarily due

to the increase in gross profit of our port infrastructure business segment by approximately

50.8% from approximately RMB27.9 million for the four months ended 30 April 2017 to

approximately RMB42.1 million for the four months ended 30 April 2018. Such increase was

primarily due to the increase in gross profit of our port infrastructure business in Southeast

Asia by approximately 138.3% from approximately RMB12.5 million to approximately

RMB29.7 million for the same period, which was primarily the result of our revenue recognised

from our Brunei Concrete Engineering Project. The increase in our gross profit was also

attributable to the increase in gross profit of our new Indonesia Conch Cement Limited with

Clinker Production Line Special Port Project from approximately RMB1 million to

approximately RMB3.7 million for the same period. Correspondingly, our gross profit margin of

our port infrastructure business segment in Southeast Asia also increased from approximately

16% for the four months ended 30 April 2017 to approximately 17.1% for the four months

ended 30 April 2018.

The increase in gross profit for the four months ended 30 April 2018 was partially offset

by the decrease in gross profit of our port infrastructure business segment in the PRC by

approximately 20.1% from approximately RMB15.4 million for the four months ended 30 April

2017 to approximately RMB12.3 million for the four months ended 30 April 2018. Such

decrease was primarily due to us completing two wharf construction projects, namely, Hainan


– 319 –


Wanning Riyue Bay Artificial Island – Hydraulic Main Works of the Sea Reclamation Project onthe Yue Island and Xiamen Zhong Ao Yacht Basin Project in 2017, which we recognised morerevenue for these two projects for the year ended 31 December 2017. Nevertheless, the grossprofit margin of our port infrastructure business segment in the PRC increased fromapproximately 11% to approximately 13.7% for the same period. Such increase was primarilydue to (i) us completing Xiamen Zhong Ao Yacht Basin Project in 2017, which we recorded arelatively lower gross profit margin of our work and/or services performed under such projectfor the year ended 31 December 2017; and (ii) our Yancheng Sheyang Harbour Area GeneralPhase III Wharf Construction Project, which we recorded a relatively higher gross profit marginof the work and/or services performed under such project for the four months ended 30 April2018.


Our selling and distribution expenses decreased by approximately 18.6% fromapproximately RMB0.9 million for the four months ended 30 April 2017 to approximatelyRMB0.7 million for the four months ended 30 April 2018. Such decrease was primarily due toa decrease in our sales staff salaries and benefits from approximately RMB0.8 million toapproximately RMB0.7 million for the same period.


Our administrative expenses increased by approximately 40.7% from approximatelyRMB8.8 million for the four months ended 30 April 2017 to approximately RMB12.3 million forthe four months ended 30 April 2018. Such increase was primarily due to our [REDACTED] ofapproximately RMB3.4 million incurred for the four months ended 30 April 2018. The increasein our administrative expenses was also attributable to the increase in our staff salaries andbenefits for our management personnel from approximately RMB4 million to approximatelyRMB4.4 million for the same period, primarily as a result of our business expansion.

Other losses – net

We realised other losses of approximately RMB0.6 million for the four months ended 30April 2017 and approximately RMB0.8 million for the four months ended 30 April 2018, whichwere primarily due to us realising net foreign exchange losses of approximately RMB0.7million and RMB0.8 million for the same period, respectively. As our trade receivables andtrade payables for our operation in Brunei are dominated in US dollars, RMB and BND, werealised net foreign exchange losses for the four months ended 30 April 2017 due to the effectof the general depreciation of US dollars against RMB, and realised net foreign exchangelosses for the four months ended 30 April 2018 due to the effect of the general depreciation ofUS dollars against BND.


Our finance costs decreased from approximately RMB1 million for the four months ended30 April 2017 to approximately RMB0.1 million for the four months ended 30 April 2018, whichwas due to the decrease in our unwinding discount of long-term payables for the same period.


– 320 –


Our finance income increased from approximately RMB64,000 for the four months ended

30 April 2017 to approximately RMB0.9 million for the four months ended 30 April 2018. Such

increase was due to the increase in our interest income mainly derived from our cash at bank

for the same period.

Income tax expense

Our income tax expense increased by approximately 37.4% from approximately RMB3.9


months ended 30 April 2018, primarily due to our increased profit before income tax as a result

of our increased revenue of port infrastructure business in Southeast Asia. Our effective tax

rate decreased from approximately 23.4% for the four months ended 30 April 2017 to

approximately 17.8% for the four months ended 30 April 2018. Such decrease was primarily

due to our business operation in Brunei and Indonesia where their effective income tax rates

are lower than our PRC corporate income tax rate.

Profit for the period

As a result of the foregoing, our profit for the period increased by approximately 92.9%

from approximately RMB12.8 million for the four months ended 30 April 2017 to approximately

RMB24.6 million for the four months ended 30 April 2018.

Year ended 31 December 2017 compared with year ended 31 December 2016

Revenue

Our revenue increased by approximately 11.7% from approximately RMB1,263.8 million

for the year ended 31 December 2016 to approximately RMB1,412 million for the year ended

31 December 2017, primarily due to the increase in revenue of our port infrastructure business

segment as a result of our new business expansion in Southeast Asia.

The increase in our revenue for the year ended 31 December 2017 was primarily

attributable to the increase in revenue of our port infrastructure business segment by

approximately 47.2% from approximately RMB925.5 million for the year ended 31 December

2016 to approximately RMB1,362.3 million for the year ended 31 December 2017. Such

increase in revenue was primarily due to the increase in our port infrastructure business in

Southeast Asia by approximately 380.9% from approximately RMB92.2 million to

approximately RMB443.5 million for the same period, as a result of our focus on developing

business in Southeast Asia, especially in Brunei. Our revenue derived from our business

operation in Brunei increased by approximately 317.4% from approximately RMB92.2 million

for the year ended 31 December 2016 to approximately RMB385 million for the year ended 31

December 2017, primarily due to our Brunei Concrete Engineering Project, which we

recognised revenue of approximately RMB143.6 million for the year ended 31 December

2017. We also recorded revenue of approximately RMB58.5 million for our business operation

in Indonesia for the year ended 31 December 2017, primarily due to our new Indonesia Conch


– 321 –


Cement Limited with Clinker Production Line Special Port Project. The increase in revenue of

our port infrastructure business segment was also attributable to the increase in revenue of our

port infrastructure business segment in the PRC by approximately 10.3% from approximately

RMB833.2 million to approximately RMB918.8 million for the same period, primarily the result

of our completion of a number of wharf construction projects in 2017, such as Hainan Wanning

Riyue Bay Artificial Island – Hydraulic Main Works of the Sea Reclamation Project on the Yue

Island, from which we realised revenue of approximately RMB307.6 million for the year ended

31 December 2017.

The increase in our revenue for the year ended 31 December 2017 was partially offset by

the decrease in our revenue of our waterway engineering business segment by approximately

85.3% from approximately RMB338.3 million for the year ended 31 December 2016 to

approximately RMB49.7 million for the year ended 31 December 2017, primarily due to us

focusing on developing our port infrastructure business in Southeast Asia in 2017.

Cost of sales

Our cost of sales increased by approximately 10.8% from approximately RMB1,130.7

million for the year ended 31 December 2016 to approximately RMB1,252.8 million for the year

ended 31 December 2017. Such increase was primarily attributable to the increase in our raw

materials and other consumables used by approximately 48.1% from approximately

RMB395.6 million for the year ended 31 December 2016 to approximately RMB585.8 million

for the year ended 31 December 2017, primarily due to our increased raw materials consumed

for our port infrastructure projects in Brunei and Indonesia as a result of our new business

expansion in Southeast Asia. Correspondingly, our cost of sales in Southeast Asia increased

from approximately RMB93.9 million for the year ended 31 December 2016 to approximately

RMB377.9 million for the year ended 31 December 2017.

The increase in our cost of sales for the year ended 31 December 2017 was also due to

our increased purchases of raw materials as a result of the new VAT scheme adopted in 2016

in the PRC, under which we are able to claim input VAT credits for purchases of raw materials

that have not been previously available before the new VAT scheme. Our increased purchases

of raw materials during the Track Record Period have also helped us to increase our

bargaining power with our raw material suppliers in terms of pricing.


Our overall gross profit increased by approximately 19.6% from approximately RMB133

million for the year ended 31 December 2016 to approximately RMB159.1 million for the year

ended 31 December 2017, while our overall gross profit margin also increased from



– 322 –


The increase in our gross profit for the year ended 31 December 2017 was primarily due



approximately RMB155.5 million for the year ended 31 December 2017. Such increase was

primarily due to us realising a gross profit of our port infrastructure business in Southeast Asia

of approximately RMB65.5 million for the year ended 31 December 2017 from a gross loss of

approximately RMB1.7 million for the year ended 31 December 2016, which was primarily

attributable to us realising a gross profit of approximately RMB46.9 million for our business

operation in Brunei for the year ended 31 December 2017 as we realised more revenue from

our Brunei Concrete Engineering Project. The increase in our gross profit was also attributable

to us realising a gross profit of approximately RMB18.6 million from our new Indonesia Conch

Cement Limited with Clinker Production Line Special Port Project, which was primarily due to

us incurring less cost of raw materials and consumables used for this project as the project

owner bore such costs. Correspondingly, we realised a gross profit margin of approximately

14.8% for our port infrastructure business segment in Southeast Asia for the year ended 31

December 2017 as compared to our gross loss margin of approximately 1.8% for the year

ended 31 December 2016, which was attributable to our gross profit margin of approximately

12.2% for our business operation in Brunei and our gross profit margin of approximately 31.8%

for our business operation in Indonesia for the same period. Such gross profit margin of our

port infrastructure business in Southeast Asia also primarily led to the increase in our gross

profit margin for the year ended 31 December 2017.

The increases in our gross profit and gross profit margin for the year ended 31 December

2017 were partially offset by the decreases in gross profit and gross profit margin of our port

infrastructure business segment in the PRC from approximately RMB116.5 million and 14% for

the year ended 31 December 2016, respectively, to approximately RMB90 million and 9.8% for

the year ended 31 December 2017, respectively. The decrease in gross profit of our port

infrastructure business segment in the PRC for the year ended 31 December 2017 was

primarily due to us completing the majority of work and/services under two wharf construction

projects in 2016, namely, Tangshan Port Caofeidian Area Phase III Coal Port Project and

Yancheng Sheyang Harbour Area General Phase III Wharf Construction Project, which we

recognised more revenue from these two projects for the year ended 31 December 2016. The

decrease in gross profit margin of our port infrastructure business segment in the PRC was

also due to us completing more work and/or services under Tangshan Port Caofeidian Area

Phase III Coal Port Project and Yancheng Sheyang Harbour Area General Phase III Wharf

Construction Project in 2016, which we recorded higher gross profit margins of these two

projects for the year ended 31 December 2016. As we conducted less work and/or services

under these two projects in 2017 as compared to the same in 2016, our gross profit margin of

our port infrastructure business segment in the PRC for the year ended 31 December 2017

decreased accordingly.

The increase in our gross profit for the year ended 31 December 2017 was partially offset

by the decrease in gross profit of our waterway engineering business segment by


2016 to approximately RMB3.6 million for the year ended 31 December 2017. Such decrease


– 323 –


was primarily due to the decrease in our waterway engineering projects in 2017 as a result of

our focus on developing our port infrastructure business in Southeast Asia. Nevertheless,

gross profit margin of our waterway engineering business segment increased from



Our selling and distribution expenses decreased by approximately 10.2% from

approximately RMB2.4 million for the year ended 31 December 2016 to approximately RMB2.2

million for the year ended 31 December 2017. Such decrease was primarily due to a decrease

in our other general selling and distribution expenses from approximately RMB1.0 million to

approximately RMB0.5 million for the same period.


Our administrative expenses increased by approximately 63% from approximately

RMB27.1 million for the year ended 31 December 2016 to approximately RMB44.2 million for

the year ended 31 December 2017. Such increase was primarily due to the increase in our staff

salaries and benefits for our management personnel in Brunei from approximately RMB11.8

million to approximately RMB16.2 million for the same period, primarily as a result of our new

business expansion in Southeast Asia. The increase in our administrative expenses for the

year ended 31 December 2017 was also due to our [REDACTED] of approximately RMB4.6

million incurred for the same period.

Other gains – net

Other gains increased from approximately RMB15,000 for the year ended 31 December

2016 to approximately RMB0.5 million for the year ended 31 December 2017, primarily the

result of us realising net foreign exchange gains of approximately RMB0.4 million for the year

ended 31 December 2017 for our business operation in Brunei, which was primarily due to the

effect of the general depreciation of US dollars against BND.


Our finance costs decreased by approximately 22.3% from approximately RMB3.3 million

for the year ended 31 December 2016 to approximately RMB2.5 million for the year ended 31

December 2017, which was due to the decrease in our unwinding discount of long-term

payables for the same period.

Our finance income increased from approximately RMB50,000 for the year ended 31

December 2016 to approximately RMB0.4 million for the year ended 31 December 2017. Such

increase was due to the increase in our interest income mainly derived from our cash at bank

for the same period.


– 324 –


Income tax expense


million for the year ended 31 December 2016 to approximately RMB26 million for the year

ended 31 December 2017, primarily due to our increased profit before income tax as a result

of our increased revenue in Southeast Asia. Our effective tax rate decreased from

approximately 25.5% for the year ended 31 December 2016 to approximately 23% for the year

ended 31 December 2017, primarily the result of the lower income tax rates in Brunei and

Indonesia.

Profit for the year

As a result of the foregoing, our profit for the year increased by approximately 16.4% from

approximately RMB75 million for the year ended 31 December 2016 to approximately

RMB87.3 million for the year ended 31 December 2017.

Year ended 31 December 2016 compared with year ended 31 December 2015

Revenue

Our revenue increased by approximately 12.4% from approximately RMB1,124.7 million

for the year ended 31 December 2015 to approximately RMB1,263.8 million for the year ended

31 December 2016, primarily due to the increase in revenue of our waterway engineering

business segment and our new business expansion in Southeast Asia, especially in Brunei.

The increase in our revenue for the year ended 31 December 2016 was primarily

attributable to the increase in revenue of our waterway engineering business segment by


2015 to approximately RMB338.3 million for the year ended 31 December 2016. Such increase

in revenue was primarily due to us completing (i) a large waterway engineering project in 2016,

namely, Dadong Port Area Dadong Shipyard Tonggang Logistics Phase IV Land Reclamation

Project, from which we recognised revenue of approximately RMB206.6 million for the year

ended 31 December 2016; and (ii) the majority of work and/services under two wharf

construction projects, namely, Tangshan Port Caofeidian Area Phase III Coal Port Project and

Yancheng Sheyang Harbour Area General Phase III Wharf Construction Project in 2016, from

which we realised revenue of approximately RMB125 million and RMB100.9 million for the

year ended 31 December 2016, respectively. The increase in our revenue was also

attributable to our new business expansion in Brunei. We established our Benteng Brunei in

2016 to conduct port infrastructure work and/or services. We realised revenue of

approximately RMB92.2 million for the year ended 31 December 2016 for our several contracts

entered into with various project owners under the Brunei Petrochemical Engineering Port and

Supporting Construction Project. We did not commence any business operation in Indonesia

for the year ended 31 December 2016.


– 325 –


The increase in our revenue was partially offset by the decrease in revenue of our port

infrastructure business segment in the PRC by approximately 10.5% from approximately

RMB931.4 million for the year ended 31 December 2015 to approximately RMB833.2 million

for the year ended 31 December 2016, primarily due to our completion of a number of wharf

construction projects in 2015, such as, Shengsi County Shenjiawan Passenger Transportation

Centre Phase II Project, from which we recognised revenue of approximately RMB61.6 million,

and Maanshan Gang Cihu Integrated Port Number One Tenders, from which we recognised

revenue of approximately RMB33.9 million, both for the year ended 31 December 2015.

Cost of sales

Our cost of sales increased by approximately 12.5% from approximately RMB1,004.7

million for the year ended 31 December 2015 to approximately RMB1,130.7 million for the year

ended 31 December 2016. Such increase was primarily attributable to the increase in our raw

materials and consumables used by approximately 77.2% from approximately RMB223.2


ended 31 December 2016, primarily due to our increased raw materials consumed for our port

infrastructure projects in Brunei as a result of our new business expansion in Southeast Asia.

Correspondingly, our cost of sales in Brunei amounted to approximately RMB93.9 million for

the year ended 31 December 2016. The increase in our cost of sales was also due to our

increased raw materials and consumables used for our waterway engineering projects in the

PRC. Correspondingly, the cost of sales for our waterway engineering business segment also

increased by approximately 78.6% from approximately RMB179.2 million for the year ended

31 December 2015 to approximately RMB320.1 million for the year ended 31 December 2016.


Our overall gross profit increased by approximately 10.9% from approximately RMB119.9

million for the year ended 31 December 2015 to approximately RMB133 million for the year

ended 31 December 2016, while our overall gross profit margin was relatively stable for the

year ended 31 December 2016 as compared to the same for the year ended 31 December

2015.

The increase in our gross profit for the year ended 31 December 2016 was primarily due



approximately RMB114.8 million for the year ended 31 December 2016. The gross profit

margin of our port infrastructure business segment also increased from approximately 11.4%

to approximately 12.4% for the same period. Such increases were primarily due to the

increases in our gross profit and gross profit margin of our port infrastructure business

segment in the PRC from approximately RMB105.8 million and 11.4% to approximately

RMB116.5 million and 14% for the same period, respectively. The increase in our gross profit

of our port infrastructure business segment in the PRC was primarily due to us completing the

majority of work and/services under our Yancheng Sheyang Harbour Area General Phase III

Wharf Construction Project in 2016, which we recognised more revenue for this project for the


– 326 –


year ended 31 December 2016. Nevertheless, such increase was partially offset by the

decrease in gross profit of our Shenzhen Liquefied Natural Gas Project (Diefu Site) Port

Engineering Project, as we were in the completion phase of this project and performed less

work and/or services under this project for the year ended 31 December 2016. The increase in

gross profit margin of our port infrastructure business segment in the PRC was primarily due

to us recording higher gross profit margins for our work and/or services completed under

Tangshan Port Caofeidian Area Phase III Coal Port Project and Yancheng Sheyang Harbour

Area General Phase III Wharf Construction Project for the year ended 31 December 2016.

The increase in our gross profit of our port infrastructure business segment was also

partially offset by our gross loss of our port infrastructure business in Southeast Asia. We

recorded a gross loss of approximately RMB1.7 million for our business operation in Brunei for

the year ended 31 December 2016 as we incurred relatively higher initial costs in commencing

our port infrastructure projects there, such as, sending our vessels to various construction

sites in Brunei. We also realised a gross loss margin of approximately 1.8% for our business

operation in Southeast Asia for the year ended 31 December 2016, primarily due to us

conducting certain work during the earlier phase of our Brunei Petrochemical Engineering Port

and Supporting Construction Project that generally had a relatively lower gross profit margin

for the year ended 31 December 2016.

The increase in our gross profit for the year ended 31 December 2016 was also due to the

increase in gross profit of our waterway engineering business segment by approximately


approximately RMB18.3 million for the year ended 31 December 2016, which was primarily

due to our completion of a large waterway engineering project in 2016, namely, Dadong Port

Area Dadong Shipyard Tonggang Logistics Phase IV Land Reclamation Project.

Nevertheless, the gross profit margin of this project was lower due to its relatively large scale,

which in turn, led to a decrease in gross profit margin of our waterway engineering business

segment from approximately 7.3% for the year ended 31 December 2015 to approximately

5.4% for the year ended 31 December 2016.


Our selling and distribution expenses decreased by approximately 30.5% from

approximately RMB3.5 million for the year ended 31 December 2015 to approximately RMB2.4

million for the year ended 31 December 2016. Such decrease was primarily due to a decrease

in our sales staff salaries and benefits from approximately RMB1.9 million to approximately

RMB1.5 million for the same period.


Our administrative expenses increased by approximately 3.7% from approximately

RMB26.1 million for the year ended 31 December 2015 to approximately RMB27.1 million for

the year ended 31 December 2016. Such increase was primarily due to the increases in our

staff salaries and benefits for our management personnel and other general administrative


– 327 –


expenses from approximately RMB10.3 million and RMB2.6 million for the year ended 31

December 2015, respectively, to approximately RMB11.8 million and RMB8 million for the year

ended 31 December 2016, respectively, primarily as a result of our new business expansion in

Brunei.

Other gains – net

Other gains decreased from approximately RMB0.1 million for the year ended 31

December 2015 to RMB15,000 for the year ended 31 December 2016, primarily the result of

us realising net foreign exchange losses of approximately RMB0.2 million for the year ended

31 December 2016 for our business operation in Brunei, which was primarily due to the effect

of the general appreciation of US dollars against BND.


Our finance costs decreased by approximately 42.9% from approximately RMB5.7 million

for the year ended 31 December 2015 to approximately RMB3.3 million for the year ended 31

December 2016, which was due to the decrease in our unwinding discount of long-term

payables for the same period.

Our finance income also decreased by approximately 67.5% from approximately RMB0.2

million for the year ended 31 December 2015 to approximately RMB50,000 for the year ended

31 December 2016. Such decrease was due to the decrease in our interest income mainly

derived from our cash at bank for the same period.

Income tax expense



ended 31 December 2016, primarily due to our increased profit before income tax as a result

of our increased revenue of waterway engineering business segment in the PRC. Our effective

tax rate was relatively stable, which was approximately 25.1% for the year ended 31 December

2015 and approximately 25.5% for the year ended 31 December 2016.

Profit for the year

As a result of the foregoing, our profit for the year increased by approximately 17.6% from

approximately RMB63.8 million for the year ended 31 December 2015 to approximately

RMB75 million for the year ended 31 December 2016.

LIQUIDITY AND CAPITAL RESOURCES

We require a substantial amount of capital to fund our working capital requirements,

purchases of construction equipment and vessels and business expansion. Our operation and

growth have primarily been financed by the cash generated from our operations.


– 328 –


Cash flow

As at 31 December 2015, 2016 and 2017 and 30 April 2018, we had cash and cash

equivalents of nil, approximately RMB6.2 million, RMB122.3 million and RMB269.7 million,

respectively. The following table sets out our cash flows for the periods indicated:


Four months ended

30 April

2015 2016 2017 2017 2018


(Unaudited)

Net cash generated from/(used in)

operating activities . . . . . . . . . . . 131,190 51,835 379 (13,793) 5,929Net cash (used in)/generated from

investing activities. . . . . . . . . . . . (127,774) (44,975) 3,419 18,837 9,467Net cash (used in)/generated from

financing activities . . . . . . . . . . . (3,416) (827) 112,519 – 131,863Net increase in cash and

cash equivalents . . . . . . . . . . . . – 6,033 116,317 5,044 147,259Cash and cash equivalents at the

beginning of the year/period . . . . . – – 6,193 6,193 122,264Exchange gains on cash and

cash equivalents. . . . . . . . . . . . . – 160 (246) (194) 149Cash and cash equivalents at the

end of the year/period . . . . . . . . – 6,193 122,264 11,043 269,672

Cash flows generated from/(used in) operating activities

We derive our cash inflow from operating activities principally from the receipt of

payments for the provision of our port and waterway engineering work and/or services. Our

cash outflow from operating activities primarily consisted of our raw materials and

subcontracting costs for the provision of our work and/or services. Our cash flow from

operating activities is affected by a number of factors, including the progress of our projects

and the settlement of trade receivables by our customers and our trade payables.

For the year ended 31 December 2015, our net cash generated from operating activities

amounted to approximately RMB131.2 million, which was primarily contributed by our profit

before income tax of approximately RMB85.2 million, an increase in contract liabilities of

approximately RMB65.2 million and a decrease in trade and other receivables of

approximately RMB51.7 million. Such cash inflow was partially offset by a decrease in trade

and other payables of approximately RMB65.2 million.


– 329 –




before income tax of approximately RMB100.6 million and an increase in trade and other

payables of approximately RMB49.7 million. Such cash inflow was partially offset by a

decrease in contract liabilities of approximately RMB59.7 million and an increase in contract

assets of approximately RMB51 million.



before income tax of approximately RMB113.3 million, a decrease in contract assets of

approximately RMB157.6 million and a decrease in restricted cash of approximately RMB16.6

million. Such cash inflow was partially offset by an increase in trade and other receivables of

approximately RMB229.4 million and a decrease in trade and other payables of approximately

RMB60.3 million.

For the four months ended 30 April 2018, our net cash generated from operating activities


before income tax of approximately RMB30 million and a decrease in trade and other

receivables of approximately RMB215.7 million. Such cash inflow was partially offset by a

decrease in trade and other payables of approximately RMB221.6 million.

Cash flows (used in)/generated from investing activities

Our cash outflow from investing activities primarily consisted of payment for the

purchases of our construction equipment, intangible assets and financial assets, and our

advance to a related party. We will settle all of our advance to a related party prior to the

[REDACTED]. Our cash inflow from investing activities primarily consisted of our proceeds

from disposal of interest in associates, proceeds from the disposal of obsolete construction

equipment and proceeds from sale of financial assets. The change of our cash flows from

investing activities was also subject to the net increase or decrease of amounts due from

shareholders, which represented our cash outflow to Third Harbor Construction as deemed

distribution to shareholders. For more details, please refer to Note 1.3 to our accountant’s

report in Appendix I to this document.

For the year ended 31 December 2015, our net cash used in investing activities amounted

to approximately RMB127.8 million, which was primarily due to our purchases of construction

equipment of approximately RMB0.7 million and our advance to a related party of

approximately RMB0.6 million, other than the net increase of amounts due from shareholders

of approximately RMB126.6 million.

For the year ended 31 December 2016, our net cash used in our investing activities

amounted to approximately RMB45 million, which was primarily due to our advance to a

related party of approximately RMB11.2 million and purchases of construction equipment of

approximately RMB10.9 million for our business operation in Brunei, other than the net

increase of amounts due from shareholders of approximately RMB23.1 million.


– 330 –


For the year ended 31 December 2017, our net cash generated from our investing

activities amounted to approximately RMB3.4 million, which was primarily due to our

[REDACTED] from disposal of interest in associates of approximately RMB7.7 million, other

than the net decrease of amounts due from shareholders of approximately RMB50.5 million.

For more details of our disposal of equity interest in associates, please refer to the section

headed “History, Reorganisation and Corporate Structure – Corporate and business

development history – Major disposals of equity interest in companies during the Track Record

Period” in this document. These cash inflow was partially offset by our purchases of

construction equipment of approximately RMB26 million for our business operation in

Southeast Asia, our purchase of financial assets at fair value through profit or loss of

approximately RMB20 million and our advance to a related party of approximately RMB10.8

million. We invested in a principal guaranteed wealth management product that was highly

liquid with floating interests and sold by one of the state-owned banks in December 2017. We

had already redeemed such wealth management product by May 2018. For more details of our

financial assets at fair value through profit or loss, please refer to the section headed

“Financial Information – Certain items of combined statements of financial position – Financial

assets at fair value through profit or loss” in this document.

For the four months ended 30 April 2018, our net cash generated from our investing

activities amounted to approximately RMB9.5 million, which was primarily due to our

[REDACTED] from sale of financial assets at fair value through profit or loss of approximately

RMB11 million. Such cash inflow was partially offset by net increase of amounts due from

shareholders of approximately RMB2.2 million.

Cash flows (used in)/generated from financing activities

Our cash inflow from financing activities primarily consisted of capital contribution from

our Shareholders. Our cash outflow for financing activities primarily consisted of our

repayments of amounts due to a related party, all of which were non-trade nature.

For the year ended 31 December 2015, our net cash used in financing activities amounted

to approximately RMB3.4 million, which was due to our repayments of amounts due to a

related party.

For the year ended 31 December 2016, our net cash used in financing activities amounted

to approximately RMB0.8 million, which was due to our repayments of amounts due to a

related party.

For the year ended 31 December 2017, our net cash generated from financing activities

amounted to approximately RMB112.5 million, which was primarily due to the contribution

from our Shareholders to Third Harbor Maritime and Benteng Brunei of approximately

RMB120.1 million for the purpose of our Reorganisation. Such cash inflow was partially offset

by our distribution to shareholder of approximately RMB7 million, primarily due to our purchase

payment to Third Harbor Construction for two vessels.


– 331 –


For the four months ended 30 April 2018, our net cash generated from financing activities

amounted to approximately RMB131.9 million, which was primarily due to the contribution

from our Shareholders of approximately RMB131.9 million for the purpose of our

Reorganisation.

Current assets and liabilities

The following table sets out details of our current assets and liabilities as at the dates

indicated:

As at 31 December

As at

30 April

As at

31 August

2015 2016 2017 2018 2018


(Unaudited)

Current assetsContract assets . . . . . . . . . . . . 93,175 169,581 138,005 160,088 202,584Inventories . . . . . . . . . . . . . . . 413 2,677 5,730 10,394 16,424Trade and other receivables . 777,099 762,014 977,413 772,416 954,271Amounts due from

shareholders . . . . . . . . . . . . 321,808 344,942 294,484 296,681 –Financial assets at fair value

through profit or loss . . . . . – – 20,000 9,000 –Restricted cash . . . . . . . . . . . . 20,545 24,661 8,024 5,141 –Cash and cash equivalents . . – 6,193 122,264 269,672 111,433

1,213,040 1,310,068 1,565,920 1,523,392 1,284,712

Current liabilitiesTrade and other payables . . . 1,028,154 1,076,492 940,508 869,978 1,108,556Income tax payable . . . . . . . . – – 7,038 7,122 17,566Contract liabilities . . . . . . . . . . 74,051 14,339 23,683 30,288 17,796

1,102,205 1,090,831 971,229 907,388 1,143,918

Net current assets . . . . . . . . 110,835 219,237 594,691 616,004 140,794


– 332 –


We had net current assets of approximately RMB110.8 million as at 31 December 2015.

Our net current assets increased from approximately RMB110.8 million as at 31December 2015 to approximately RMB219.2 million as at 31 December 2016. This wasprimarily due to (i) the increase in our contract assets of approximately RMB76.4 million,primarily the result of our increased port and waterway engineering work and/or services thathave been performed but not yet submitted and/or been certified by our customers and not yetbilled by us; and (ii) the decrease in our contract liabilities of approximately RMB59.7 million.The increase in our net current assets was partially offset by the decrease in our trade andother receivables of approximately RMB15.1 million.

Our net current assets increased from approximately RMB219.2 million as at 31December 2016 to approximately RMB594.7 million as at 31 December 2017. This wasprimarily due to (i) the increase in our trade and other receivables of approximately RMB215.4million; and (ii) the increase in cash and cash equivalents of approximately RMB116.1 million,which was primarily attributable to the contribution from our Shareholders to Third HarborMaritime and Benteng Brunei of approximately RMB120.1 million for the purpose of ourReorganisation. The increase in our net current assets was partially offset by the decrease inour contract assets of approximately RMB31.6 million.

Our net current assets increased from approximately RMB594.7 million as at 31December 2017 to approximately RMB616 million as at 30 April 2018. This was primarily dueto (i) the increase in cash and cash equivalents of approximately RMB147.4 million, which wasprimarily attributable to the contribution from our Shareholders to our Company ofapproximately RMB131.9 million for the purpose of our Reorganisation; and (ii) the increase incontract assets of approximately RMB22.1 million. The increase in our net current assets waspartially offset by the decrease in our trade and other receivables of approximately RMB205million.

As at 31 August 2018, being the latest practicable date for the purpose of indebtednessstatement in this document, our net current assets decreased to approximately RMB140.8million, primarily due to the decrease in amounts due from shareholders of approximatelyRMB296.7 million which represented our cash outflow to Third Harbor Construction asdeemed distribution to shareholders and a decrease in our cash and cash equivalents ofapproximately RMB158.2 million. The decrease in our net current assets as at 31 August 2018was partially offset by an increase in our trade and other payables of approximately RMB238.6million.

Indebtedness

As at 31 August 2018, being the latest practicable date for the purpose of indebtednessstatement in this document, we did not have any material mortgages, charges, debentures,loan capital, debt securities, loans, bank overdrafts or other similar indebtedness, financelease or hire purchase commitments, liabilities under acceptances (other than normal tradebills), acceptance credits, which are either guaranteed, unguaranteed, secured or unsecured,or guarantees or other contingent liabilities. As at 31 August 2018, we did not have anyunutilised banking facility.


– 333 –


Working capital

Our Directors believe that after taking into consideration the financial resources available

to us, including cash flows from our operations, banking facilities and estimated [REDACTED]

from the [REDACTED], we have sufficient working capital for at least 12 months commencing

from the date of this document.

CERTAIN ITEMS OF COMBINED STATEMENTS OF FINANCIAL POSITION

Contract assets

Our contract assets primarily represent our port and waterway engineering work and/or

services that have been performed but not yet submitted and/or been certified by our

customers, and not yet billed by us as at the end of respective year/period. Our contract assets

amounted to approximately RMB93.2 million, RMB169.6 million, RMB138 million and

RMB160.1 million as at 31 December 2015, 2016 and 2017 and 30 April 2018, respectively.

As at 30 April 2018, all of our contract assets of approximately RMB256.4 million were

certified by our customers. From 30 April 2018 till 31 August 2018, being the latest practicable

date for the purpose of indebtedness statement in this document, we had not billed for any of

our contract assets as at 30 April 2018 as we do not have the right to bill yet pursuant to certain

conditions specified in the relevant project contracts.

Inventories

Our inventories only consist of raw materials and other consumables used. Our

inventories increased by approximately 548.2% from approximately RMB0.4 million as at

31 December 2015 to approximately RMB2.7 million as at 31 December 2016, and increased

by approximately 114% to approximately RMB5.7 million as at 31 December 2017. Our

inventories further increased by approximately 81.4% to approximately RMB10.4 million as at

30 April 2018. Such increases were primarily due to our increased purchases of raw materials

and other consumables used for our projects in Brunei and Indonesia as we had performed the

majority of our port infrastructure work and/or services in Southeast Asia by ourselves instead

of engaging subcontractors during the Track Record Period.


– 334 –


Trade and other receivables

The following table sets out a breakdown of our trade and other receivables as at the

dates indicated:

As at 31 December

As at

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade receivables . . . . . . . . . . . . . . 621,787 599,131 780,382 596,007Less: allowance for impairment of

trade receivables . . . . . . . . . . . . (23,425) (24,186) (24,667) (26,410)

Trade receivables – net . . . . . . . . . 598,362 574,945 755,715 569,597

Retention receivables. . . . . . . . . . . 115,617 127,354 195,113 165,049Less: allowance for impairment of

retention trade receivables . . . . . (17,686) (16,962) (22,635) (21,614)

Retention receivables – net . . . . . . 97,931 110,392 172,478 143,435

Bills receivables . . . . . . . . . . . . . . . 7,430 10,850 1,710 6,722Other receivables . . . . . . . . . . . . . . 47,358 50,749 50,392 34,538Prepayments. . . . . . . . . . . . . . . . . . 11,484 5,889 2,609 10,634Prepaid taxation . . . . . . . . . . . . . . . 28,011 11,633 8,357 9,900

790,576 764,458 991,261 774,826

Less: non-current portionRetention receivables. . . . . . . . . . . (13,477) (1,978) (13,848) (2,410)Prepayments. . . . . . . . . . . . . . . . . . – (466) – –

(13,477) (2,444) (13,848) (2,410)

Total: . . . . . . . . . . . . . . . . . . . . . . . 777,099 762,014 977,413 772,416


– 335 –


Trade and bills receivables

Our trade and bills receivables primarily related to receivables for our port and waterwayengineering work and/or services performed under our completed and on-going projects thathave been certified by our customers and billed by us. We generally recognise our revenuefrom our customers upon completion of certain phases of a contract. We typically submitwork-in-progress applications to our customers on a monthly basis, which generally include (i)our estimated value of work and/or services completed during the month between our previousand current monthly cut-off dates; and (ii) proposed payment amount to be settled by ourcustomers based on such estimated value of work and/or services completed and calculatedat certain percentage in accordance with the stipulated terms and conditions of the respectivecontracts. The monthly cut-off dates of such work-in-progress applications vary from project toproject and are also typically specified in the contracts. Typically, the authorised personnelemployed by our customers will review our work-in-progress applications, and inspect andcertify the value of the work and/or service completed by us during such month. Once ourcustomers agree with our work-in-progress applications, they will arrange payment inaccordance with the payment amount in our work-in-progress applications within a specifiedperiod of time according to the terms specified in the contracts.

As we conduct our port and waterway engineering work and/or services on a non-recurring and project-by-project basis, our revenue recognised during the Track RecordPeriod might fluctuate subject to the size and the progress of our projects at a given time,which in turn, affected our trade and bills receivables balance as at the end of respectiveyear/period and the average turnover days of our trade and bills receivables during the TrackRecord Period. Our trade and bills receivables amounted to approximately RMB605.8 million,RMB585.8 million, RMB757.4 million and RMB576.3 million as at 31 December 2015, 2016,2017 and 30 April 2018, respectively.

The following table sets out the average turnover days of our trade and bills receivablesfor the periods indicated:


Four monthsended 30

April

2015 2016 2017 2018

Average turnover days of ourtrade and billsreceivables(1) . . . . . . . . . . . . 208 172 174 298(2)

Notes:

1. Average turnover days of our trade and bills receivables is equivalent to the average of opening andclosing balances of trade and bills receivables for the relevant financial year/period divided by revenuefor the relevant financial year/period and multiplied by 365/120 days.

2. Our revenue is relatively lower in the first quarter compared to the same in the other quarters within thesame financial year, primarily the result that our port and waterway engineering work and/or services areaffected by seasonal weather conditions and holiday season. As such, the average turnover days of ourtrade and bills receivables for the four months ended 30 April 2018 were relatively longer due to ourlower revenue recorded for the same period as the denominator.


– 336 –


The following table sets out the ageing analysis of our trade and bills receivables as at the

dates indicated:

As at 31 December

As at

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within 3 months . . . . . . . . . . . . . . 103,411 131,770 455,957 124,1544 to 6 months . . . . . . . . . . . . . . . . 38,096 20,518 77,384 221,9647 to 12 months . . . . . . . . . . . . . . . 136,992 106,305 74,549 105,6271 to 2 years . . . . . . . . . . . . . . . . . . 67,797 119,607 85,940 76,0092 to 3 years . . . . . . . . . . . . . . . . . . 254,079 25,295 50,793 29,756Over 3 years . . . . . . . . . . . . . . . . . 28,842 206,486 37,469 45,219

629,217 609,981 782,092 602,729

As at 31 December 2015, 2016 and 2017 and 30 April 2018, trade receivables amounted

to approximately RMB313.6 million, RMB278.3 million, RMB140.3 million and RMB143.7

million, respectively, were past due but not impaired. These trade receivables were related to

certain independent customers who have strong financial ability with low credit risk, which our

Directors consider the default possibility for these trade receivables is rare.

The following table sets out the ageing analysis of these trade receivables as at the dates

indicated:

As at 31 December

As at

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within 3 months . . . . . . . . . . . . . . – – – –4 to 6 months . . . . . . . . . . . . . . . . 15,653 – – 46,0227 to 12 months . . . . . . . . . . . . . . . 24,124 33,847 37,304 74,6261 to 2 years . . . . . . . . . . . . . . . . . . 29,048 48,576 49,653 1,4832 to 3 years . . . . . . . . . . . . . . . . . . 228,820 10,037 36,256 75Over 3 years . . . . . . . . . . . . . . . . . 15,948 185,793 17,080 21,492

313,593 278,253 140,293 143,698


– 337 –


Retention receivables

Upon completion of our port and waterway engineering projects, our customers typicallywithhold approximately 5% to 10% of the total projects’ contract value as retention money,which will be released to us upon expiry of the defect liability period that normally lasts for oneto two years after completion of the projects.

The following table sets out the ageing analysis of our retention receivables as at thedates indicated:

As at 31 December

As at

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within 1 year . . . . . . . . . . . . . . . . . 42,566 52,183 92,625 75,7201 to 2 years . . . . . . . . . . . . . . . . . . 14,257 36,470 40,901 29,0752 to 3 years . . . . . . . . . . . . . . . . . . 24,006 10,331 35,112 28,4623 to 4 years . . . . . . . . . . . . . . . . . . 20,700 9,230 5,440 10,0064 to 5 years . . . . . . . . . . . . . . . . . . 5,840 8,326 5,820 4,432Over 5 years . . . . . . . . . . . . . . . . . 8,248 10,814 15,215 17,354

115,617 127,354 195,113 165,049

During the Track Record Period, balances of our trade and bills receivables and average

turnover days of our trade and bills receivables were generally high, and ageing of our trade

and bills and retention receivables were relatively long, primarily the result that our trade and

bills receivables were related to a diversified group of customers, majority of which are

subsidiaries or affiliates of Chinese state-owned enterprises, public and/or private companies

which are also the key players in the PRC port, waterway and marine engineering industry. As

confirmed by our Industry Expert, Frost & Sullivan, it is the industrial norm for non-state-owned

companies engaged in our industry to have relatively longer receivable collection period.

As our customers typically have solid background and financial conditions, good

reputation, credibility and payment records, and did not encounter any financial difficulties

resulting in failed payment obligations, during the Track Record Period and up to the Latest

Practicable Date, our Group had no defaults with regard to the recoverability of our trade and

bills receivables or retention receivables. Nevertheless, we seek to maintain strict control over

our outstanding receivables to minimise our credit risk. Our senior management monitors the

ageing of our trade and bills and retention receivables on a regular basis, and has also

undertaken measures aimed at managing the ageing of our trade and bills and retention

receivables. Before submitting tenders and quotations for our port and waterway engineering

projects, we would also assess the credit quality and reputation of our potential customers.


– 338 –


Based on the requirement under HKFRS 9 which came into effect on 1 January 2018, we

assessed and provided impairment of trade and bills and retention receivables of

approximately RMB5.9 million, RMB37,000, RMB6.2 million and RMB0.7 million as at 31

December 2015, 2016 and 2017 and 30 April 2018, respectively. For more details, please refer

to section headed “Financial Information – Quantitative and qualitative disclosures about

financial risks – Credit risks” in this document and Notes 2.12 and 3.1(b) to our accountant’s

report in Appendix I to this document. Our Directors believe that our policy for the impairment

provision for our trade and bills and retention receivables is adequate.

In order to enhance our future receivable collection, we have also implemented

receivable collection internal control policy since December 2017. We set out below the details

and major procedures of our receivable collection policy:

• Conducting Know-Your-Client checking on our potential customers before tendering

for new projects;

• Updating the internal project information from time to time to ensure that the key

personnel of our projects are kept informed at all time;

• Regularly and actively conducting receivable collection by phone, in writing, or

taking legal actions if appropriate;

• Conducting regular internal meetings to examine our outstanding receivables and

making plans for further collection actions; and

• Strictly adhering to our impairment provision and adding receivable collection as a

performance evaluation criteria for our project managers.

As at 31 August 2018, approximately RMB218.8 million or approximately 30.5% of our

trade, bills and retention receivables as at 30 April 2018 had been settled.

Other receivables, prepayments and prepaid taxation

Our other receivables, prepayments and prepaid taxation primarily consisted of our

advanced tender payment and performance deposits due from our customers, prepayments

for domestic and importing purchases, and prepaid custom taxes. Our long-term receivables

are classified as current assets if we expect to receive in one year or less. Our other

receivables, prepayments and prepaid taxation amounted to approximately RMB86.9 million,

RMB68.3 million, RMB61.4 million and RMB55.1 million as at 31 December 2015, 2016, 2017

and 30 April 2018, respectively.


– 339 –


Amounts due from shareholders

As at 31 December 2015, 2016, 2017 and 30 April 2018, we had amounts due from

shareholders of approximately RMB321.8 million, RMB344.9 million, RMB294.5 million and

RMB296.7 million, respectively. Our amounts due from shareholders represented cash

outflow to Third Harbor Construction as deemed distribution to shareholders. For more details,

please refer to Note 1.3 to our accountant’s report in Appendix I to this document. As at the

Latest Practicable Date, we had settled all of our amounts due from shareholders.

Financial assets at fair value through profit or loss

Given the low interest rate of bank savings, we invested in a principal guaranteed wealth

management product that was highly liquid with floating interests and sold by one of the

state-owned banks in December 2017. Such wealth management product can be redeemed at

any time after the investment. To minimise any potential risk brought by our investing

activities, it is our treasury policy to only invest in principal guaranteed financial products. As

at 31 December 2017 and 30 April 2018, our financial assets at fair value through profit or loss

was approximately RMB20 million and RMB9 million, respectively. We had redeemed all of our

wealth products by May 2018 and we do not intend to invest into any financial asset in the near

future.

We have a team of personnel who performs valuation on our financial assets. On an

annual basis, our team adopts various valuation techniques to determine the fair value of our

Group’s instrument. For further details, please refer to Note 3.3 to our accountant’s report in

Appendix I to this document.

Restricted cash

Our restricted cash amounted to approximately RMB20.5 million, RMB24.7 million, RMB8

million and RMB5.1 million as at 31 December 2015, 2016, 2017 and 30 April 2018,

respectively. The majority of our restricted cash represented our pledged security for an

unsettled litigation lawsuit with our subcontractor, which amounted to approximately RMB10.8

million, RMB15.3 million, RMB4.3 million and RMB4.3 million as at 31 December 2015, 2016

and 2017 and 30 April 2018, respectively. The remaining restricted cash represented our bank

deposits for issuance of letter of guarantee and bank acceptance notes.


– 340 –


Trade and other payables

The following table sets out a breakdown of our trade and other payables as at the dates

indicated:

As at 31 December

As at

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade payables . . . . . . . . . . . . . . 542,714 547,022 645,118 510,776Bills payables . . . . . . . . . . . . . . . . 5,935 2,499 9,219 4,385Retention payables . . . . . . . . . . . . 141,958 142,692 117,524 97,701Long-term payables . . . . . . . . . . . 352,410 407,273 293,162 234,617Payroll and social security . . . . . . 7,471 6,654 4,581 3,667Other payables . . . . . . . . . . . . . . . 46,446 49,913 15,403 9,047Other tax liabilities excluding

income tax liabilities . . . . . . . . . 37,131 32,252 36,951 42,080

1,134,065 1,188,305 1,121,958 902,273

Less: non-current portionRetention payables . . . . . . . . . . . . (61,166) (57,335) (48,630) (32,133)Long-term payables . . . . . . . . . . . (44,745) (54,478) (132,820) (162)

(105,911) (111,813) (181,450) (32,295)

Total: . . . . . . . . . . . . . . . . . . . . . . . 1,028,154 1,076,492 940,508 869,978

Trade and bills payables

Our trade and bills payables primarily related to our purchases of raw materials and other

consumables used, rental expenses for vessels and construction equipment from work and/or

services performed by our subcontractors for our completed and on-going projects. As we

conduct our port and waterway engineering work/or services on a non-recurring and project-

by-project basis, our cost of sales incurred during the Track Record Period might fluctuate

subject to the size and the progress of our projects at a given time, which in turn, affected our

trade and bills payables balance as at the end of respective year/period and the average

turnover days of our trade and bills payables during the Track Record Period. Our trade and

bills payables amounted to approximately RMB548.6 million, RMB549.5 million, RMB654.3

million and RMB515.2 million as at 31 December 2015, 2016, 2017 and 30 April 2018,

respectively.


– 341 –


The following table sets out the average turnover days of our trade and bills payables for

the periods indicated:


Four months

ended

30 April

2015 2016 2017 2018

Average turnover days of our

trade and bills payables(1) . . 215 177 175 310(2)

Notes:

1. Average turnover days of our trade and bills payables is equivalent to the average of opening and closingbalances of trade payables for the relevant financial year/period divided by cost of sales of the relevantfinancial year/period and multiplied by 365/120 days.

2. Our cost of sales is relatively lower in the first quarter compared to the same in the other quarters withinthe same financial year, primarily the result that our port and waterway engineering work and/or servicesare affected by seasonal weather conditions and holiday season. As such, the average turnover days ofour trade and bills payables for the four months ended 30 April 2018 were relatively longer due to our

lower cost of sales recorded for the same period as the denominator.

The following table sets out the ageing analysis of our trade and bills payables as at the

dates indicated:

As at 31 December

As at

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within 3 months . . . . . . . . . . . . . . 157,159 243,888 239,998 123,4504 to 6 months . . . . . . . . . . . . . . . . 82,564 70,935 149,227 105,7627 to 12 months . . . . . . . . . . . . . . . 121,850 54,782 145,966 156,6841 to 2 years . . . . . . . . . . . . . . . . . . 102,049 71,835 71,331 87,5532 to 3 years . . . . . . . . . . . . . . . . . . 68,247 31,445 25,860 25,715Over 3 years . . . . . . . . . . . . . . . . . 16,780 76,636 21,955 15,997

548,649 549,521 654,337 515,161

As at 31 August 2018, approximately RMB141.2 million or approximately 24.3% of our

trade, bills and retention payables as at 30 April 2018 had been settled.


– 342 –


Retention payables

Upon completion of our port and waterway engineering projects, we typically withhold

approximately 5% to 10% of the total projects’ contract value as retention money, which will be

released to our subcontractors upon expiry of the defect liability period that normally lasts for

one to two years after completion of the projects.

The following table sets out the ageing analysis of our retention payables as at the dates

indicated:

As at 31 December

As at

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within 1 year . . . . . . . . . . . . . . . . . 20,815 25,047 51,323 25,0331 to 5 years . . . . . . . . . . . . . . . . . . 119,787 115,712 59,029 64,389Over 5 years . . . . . . . . . . . . . . . . . 1,356 1,933 7,172 8,279

141,958 142,692 117,524 97,701

Long-term payables

Our long-term payables mainly represented our unbilled payables due to our

subcontractors for certain work and/or services performed by them which we expected to pay

over one year. Our long-term payables amounted to approximately RMB352.4 million,

RMB407.3 million, RMB293.2 million and RMB234.6 million as at 31 December 2015, 2016,

2017 and 30 April 2018, respectively. The decreases in our long-term payables as at 31

December 2017 and 30 April 2018 were primarily as a result of our decreased subcontracting

costs as we had performed the majority of our port infrastructure work and/or services in

Southeast Asia by ourselves instead of engaging subcontractors during the Track Record

Period.


– 343 –


The following table sets out the ageing analysis of our long-term payables as at the dates

indicated:

As at 31 December

As at

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within 1 year . . . . . . . . . . . . . . . . . 154,461 203,168 151,611 101,6901 to 5 years . . . . . . . . . . . . . . . . . . 164,261 194,786 133,416 124,234Over 5 years . . . . . . . . . . . . . . . . . 33,688 9,319 8,135 8,693

352,410 407,273 293,162 234,617

Other payables, other tax liabilities excluding income tax liabilities and payroll and

social security

Our other payables, other tax liabilities excluding income tax liabilities and payroll and

social security primarily consisted of performance deposits provided by our suppliers and

subcontractors, payroll and social securities for our staff and other tax liabilities excluding

income tax liabilities. Our other payables, other tax liabilities excluding income tax liabilities

and payroll and social security amounted to approximately RMB91 million, RMB88.8 million,

RMB56.9 million and RMB54.8 million as at 31 December 2015, 2016, 2017 and 30 April 2018,

respectively.

Contract liabilities

Our contract liabilities primarily represented non-refundable advance payments made by

our customers, which was approximately 5% to 10% of the projects’ contract value for us to

prepare the relevant raw materials and other necessary construction facilities upon the

commence of our new projects. Our contract liabilities amounted to approximately RMB74.1

million, RMB14.3 million, RMB23.7 million and RMB30.3 million as at 31 December 2015,

2016, 2017 and 30 April 2018, respectively.


– 344 –


CAPITAL EXPENDITURES

Historical capital expenditures

The following table sets out our historical capital expenditures during the periods

indicated:


Four months

ended

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Property, plant and

equipment . . . . . . . . . . . . . . . 654 12,425 26,196 44Intangible assets . . . . . . . . . . . 650 – – 203

Total: . . . . . . . . . . . . . . . . . . . . 1,304 12,425 26,196 247

Our historical capital expenditures amounted to approximately RMB1.3 million, RMB12.4

million RMB26.2 million and RMB0.2 million as at 31 December 2015, 2016 and 2017 and 30

April 2018, respectively. The increase in our historical capital expenditures during the Track

Record Period was primarily due to the increase in our property, plant and equipment. Such

increase was primarily due to our purchases of construction equipment for our business

operation in Southeast Asia and transportation vehicles.

Planned capital expenditures

As part of our future development strategy, we expect to incur approximately HK$41.3

million in capital expenditures through the year ending 31 December 2020, primarily to be used

for purchasing vessels and construction equipment to enhance the efficiency of our wharf

construction and waterway engineering work and/or services. The following table sets out a

summary of our planned capital expenditures for the periods indicated:

Year ending 31 December

2019 2020

HK$’000 HK$’000

Purchases of engineering vessels, lifting machinery,

concrete machinery, earthmoving machinery and

other ancillary construction equipment. . . . . . . . . . . 8,730 32,580


– 345 –


CONTRACTUAL COMMITMENTS

Capital commitments

As at 31 December 2015, 2016 and 2017 and 30 April 2018, we did not have any

significant capital commitments.

Operating lease commitments

Our operating lease commitments amounted to nil, approximately RMB1.0 million,

RMB21.4 million and RMB14.1 million as at 31 December 2015, 2016 and 2017 and 30 April

2018, respectively. Our operating lease commitments were primarily related to our rental

payables for various construction equipment used during our business operation in Brunei.

The following table sets out the outstanding commitments for future minimum lease

payments under our non-cancellable lease arrangements as at the dates indicated:

As at 31 December

As at

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

No later than 1 year . . . . . . . . . . . – 958 20,834 13,611Later than 1 year and no later

than 2 years . . . . . . . . . . . . . . . . – – 403 403Later than 2 year and less than

3 years . . . . . . . . . . . . . . . . . . . . – – 203 134

Total: . . . . . . . . . . . . . . . . . . . . . . . – 958 21,440 14,148

RELATED PARTY TRANSACTIONS

During the Track Record Period, we entered into various transactions with Watts Gallop

Group and other related parties, some of which will continue after the [REDACTED]. These

transactions primarily include procurement of raw materials from Watts Gallop Group and

renting offices from Third Harbor Construction. Our Directors are of the view that such

transactions have been carried out in the ordinary course of business of our Group and are

entered into on normal commercial terms and are fair and reasonable. Please refer to the

sections headed “Connected Transactions” and “Relationship with Controlling Shareholders”

in Note 29 to our accountant’s report in Appendix I to this document for further details of our

connected transactions.


– 346 –


CONTINGENT LIABILITIES

As at 30 April 2018, there were two outstanding claims against the Third HarborConstruction prior to our Reorganisation. According to our PRC Legal Advisers, Third HarborConstruction may potentially face liability, legal fees and costs and interest, but are notexpected to be significant. Other than that, our Group is not involved in any current materiallegal proceedings, nor are we aware of any pending or potential material legal proceedingsthat involve our Group. If we were involved in such material legal proceedings, we wouldrecord any loss contingencies when, based on information then available, it is probable that aloss has been incurred and the amount of the loss can be reasonably estimated. Save asdisclosed, our Directors confirm that there has been no other contingent liabilities of our Groupsince 30 April 2018.

FINANCIAL RATIOS


Four months

ended

30 April

2015 2016 2017 2018

Net profit margin(1). . . . . . . . . . . . . . 5.7% 5.9% 6.2% 9.2%Return on equity(2) . . . . . . . . . . . . . . 21.2% 20.3% 17.2% N/A(9)

Return on assets(3) . . . . . . . . . . . . . 4.2% 4.8% 5.2% N/A(9)

Interest coverage ratio(4) . . . . . . . . . 15.9 31.8 45.5 229.7

As at 31 December

As at

30 April

2015 2016 2017 2018

Current ratio(5) . . . . . . . . . . . . . . . . . . . . 1.1 1.2 1.6 1.7Quick ratio(6) . . . . . . . . . . . . . . . . . . . . . 1.1 1.2 1.6 1.7Gearing equity(7) . . . . . . . . . . . . . . . . . . N/A N/A N/A N/ANet debt to equity(8) . . . . . . . . . . . . . . . N/A N/A N/A N/A

Notes:

1. Net profit margin represents profit for the financial year/period divided by revenue for the same financialyear/period.

2. Return on equity represents profit for the financial year/period divided by the average of opening and closingbalances of total equity as at the end of the financial year/period.

3. Return on assets represents profit for the financial year/period divided by the average of opening and closingbalances of total assets as at the end of the financial year/period.

4. Interest coverage represents profit before tax and finance costs divided by finance costs for the financialyear/period.

5. Current ratio represents total current assets divided by total current liabilities as at the end of the financialyear/period.


– 347 –


6. Quick ratio represents total current assets less inventories divided by total current liabilities as at the end of thefinancial year/period.

7. Gearing ratio represents bank loans and other borrowings divided by total equity as at the end of the financialyear. We did not have bank loans and other borrowings during the Track Record Period.

8. Net debt to equity ratio represents bank loans and other borrowings less cash and cash equivalents divided bytotal equity as at the end of the financial year. We did not have bank loans and other borrowings during theTrack Record Period.

9. Such ratio is not meaningful as it is not comparable to annual numbers.

Net profit margin

Our net profit margin increased from approximately 5.7% for the year ended 31 December

2015 to approximately 5.9% for the year ended 31 December 2016, primarily due to our

increased net profit for the same period as a result of our decreased administrative expenses

and finance costs. Our net profit margin increased to approximately 6.2% for the year ended

31 December 2017 and further increased to 9.2% for the four months ended 30 April 2018,

primarily due to our increased gross profit margin of our business operation in Brunei as a

result of our new business expansion in Southeast Asia.

Return on equity

Our return on equity decreased from approximately 21.2% for the year ended 31

December 2015 to approximately 20.3% for the year ended 31 December 2016, and further

decreased to approximately 17.2% for the year ended 31 December 2017, primary due to the

comparatively higher percentage increase in our total equity as compared with the percentage

increase in our net profit for the same period.

Return on assets

Our return on assets increased from approximately 4.2% for the year ended 31 December

2015 to approximately 4.8% for the year ended 31 December 2016, primarily due to our

increased net profit for the same period as a result of our increased revenue for our waterway

engineering business segment in the PRC. Our return on assets further increased to

approximately 5.2% for the year ended 31 December 2017, primarily due to our increased net

profit for the same period as a result of our increased revenue for our business operation in

Brunei.

Interest coverage ratio

Our interest coverage increased from approximately 15.9 for the year ended 31

December 2015 to approximately 31.8 for the year ended 31 December 2016, and further

increased to approximately 45.5 for the year ended 31 December 2017 and approximately

229.7 for the four months ended 30 April 2018, such increases were primarily due to the

increase in our profit before tax and the decrease in our finance costs, which were primarily as

a result of (i) our increased revenue for our waterway engineering business segment in the


– 348 –


PRC for the year ended 31 December 2016 and our increased revenue for our businessoperation in Southeast Asia during the Track Record Period; and (ii) our decreased financecosts during the Track Record Period, which was primarily due to the decrease in ourunwinding discount of long-term payables.

Current ratio and quick ratio

Our current ratio and quick ratio were relatively stable as at 31 December 2015 and 2016.Our current ratio and quick ratio increased as at 31 December 2017, primarily due to theincrease in our total current assets and the decrease in our total current liabilities for the sameperiod due to the Business transfer. For illustration purpose only, assuming that we completedour Reorganisation by 30 April 2018, the adjusted current ratio and quick ratio would beapproximately 1.2 and 1.2 as at 30 April 2018, respectively.

OFF-BALANCE SHEET COMMITMENTS AND ARRANGEMENTS

Save as disclosed in the section headed “Financial Information – Contractualcommitments” in this document, we had not entered into any material off-balance sheettransactions as at 30 April 2018.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT FINANCIAL RISKS

We are exposed to various types of financial risks in the ordinary course of our business,including marketing risk (including foreign exchange risk), credit risk and liquidity risk. Ourexposure to these market risks are described below:

Market risk (including foreign exchange risk)

We operate internationally and are exposed to foreign exchange risk arising from variouscurrency exposures. Our Group’s entities collect most of the revenue and incur most of theexpenditures in respect of their functional currencies. Foreign exchange risk arises fromvarious currency exposures primarily through proceeds received from our customers andpayments to our suppliers that are denominated in a currency other than our Group’s entities’functional currency. The currencies giving rise to this risk are primarily US dollars, as certainof our important purchases and sales are denominated in US dollars. Our managementconsiders that our exposure to foreign currency exchange risk is not significant. We currentlydo not have a foreign currency hedging policy. However, our management monitors our foreignexchange exposure and will consider hedging significant foreign currency exposure should theneed arise.

Credit risk

Credit risk arises from our restricted cash, cash and cash equivalents, trade and otherreceivables and contract assets. The carrying amounts of each class of these financial assetsrepresent our Group’s maximum exposure to credit risk in relation to the corresponding classof financial assets. To manage our credit risk with respect to our cash and cash equivalentsand restricted cash, we placed them with highly reputable financial institutions.


– 349 –


We consider the probability of default upon initial recognition of assets and whether there

has been a significant increase in credit risk on an ongoing basis throughout each reporting

period. To assess whether there is a significant increase in credit risk, we compare the risk of

default occurring on the assets as at the reporting date with the risk of default as at the date of

initial recognition. We also consider the reasonable and supportive forwarding-looking

information available, The following indicators are especially incorporated:

• actual or expected significant adverse changes in business, financial or

economic conditions that are expected to cause a significant change to our

customers’ ability to meet its obligations;

• actual or expected significant changes in the operating results of our

customers;

• significant increases in credit risk on other financial instruments of our

customers; and

• significant changes in the expected performance and behaviour of our

customers, including changes in the payment status and operating results of

our customers.

For more details, please refer to Notes 2.12 and 3.1(b) to our accountant’s report in

Appendix I to this document. Our Directors believe that our policy for the impairment provision

for our trade and bills and retention receivables is adequate.

Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash

equivalents, the availability of funding through an adequate amount of committed credit

facilities and the ability to close out market positions. Our objective is to maintain adequate

committed credit lines to ensure sufficient and flexible funding is available to our Group.

Further quantitative data in respect of our exposure to liquidity are set out in more details in

Note 3.1(c) to the accountant’s report in Appendix I to this document.

DISTRIBUTABLE RESERVES

The Cayman Islands law provides that either profit or share premium account of a

company incorporated in the Cayman Islands, such as our Company, may be applied in such

manner as it may from time to time determine, subject to the provisions, if any, of its

memorandum and articles of association, provided that no distribution or dividend may be paid

to its members out of the share premium/capital reserve account or profit if this would result in

the company being unable to pay its debts as they fall due in the ordinary course of business.

Our Company’s reserve available for distribution as dividend comprises its profit and share

premium account. As at 30 April 2018, the retained profits and capital reserve of our Company

were nil and RMB189 million respectively.


– 350 –


DIVIDEND

During the Track Record Period and up to the Latest Practicable Date, we had not

distributed any dividends to the then equity holders of our Group.

After [REDACTED], we intend to declare and pay dividends, but we currently do not have

a fixed dividend pay-out ratio. The declaration, payment and the amount of dividends will be

subject to our discretion and will depend on the results of operations, cash flows, financial

condition, statutory and regulatory restrictions on the payment of dividends by us, future

prospects and other factors that we may consider relevant. Holders of the Shares will be

entitled to receive such dividends pro rata according to the amounts paid up or credited as paid

up on the Shares.

Dividends may only be paid out of our distributable profits as permitted under the relevant

laws. To the extent profits are distributed as dividends, such portion of profits will not be

available to be reinvested in our operations. There can be no assurance that we will be able to

declare or distribute dividends in the amount set out in any plan of the Board or at all. The

dividend distribution record in the past may not be used as a reference or basis to determine

the level of dividends that may be declared or paid by us in the future.

[REDACTED]

For the year ended 31 December 2017 and the four months ended 30 April 2018, we

incurred [REDACTED] of approximately RMB4.6 million and RMB3.4 million, respectively

which were charged to our combined statements of comprehensive income for the same

period. We expect to further incur [REDACTED] (including [REDACTED] commissions) of

approximately HK$[REDACTED] million (based on mid-point of our indicative [REDACTED]

for the [REDACTED] and assuming that the [REDACTED] is not exercised and without taking

into account any discretionary incentive fees, if applicable) by the completion of the

[REDACTED], of which an estimated amount of approximately HK$[REDACTED] million will

be charged to our consolidated statements of comprehensive income for the year ending 31

December 2018 and an estimated amount of approximately HK$[REDACTED] million will be

capitalised. We do not expect these [REDACTED] to have a material impact on our business

and results of operations for the year ending 31 December 2018.

RECENT DEVELOPMENT

After our Track Record Period, Royal Karry entered into the Share Transfer Agreement

with Third Harbor Construction and Worldlink to acquire Shanghai Shanyu as part of our

Reorganisation. Upon completion of the share transfer, Shanghai Shanyu became an indirect

wholly-owned subsidiary of our Company. The consideration for this transfer was

approximately RMB122.4 million with reference to the registered capital of Shanghai Shanyu,

which was accounted as deemed distribution to shareholders.


– 351 –


On 6 July 2018, Third Harbor Construction and Third Harbor Maritime entered into the

Novation Agreement, pursuant to which the Third Harbor Construction Contract Assets, the

Third Harbor Construction Trade Receivables and Payables and related rights and obligations

were novated and transferred from Third Harbor Construction to Third Harbor Maritime,

retroactively effective as at the date of 1 December 2017. The consideration for such Novation

is approximately RMB155 million. Taking into account the receivables collected and payables

settled by Third Harbor Construction from 1 December 2017 to 6 July 2018, the final settlement

amount for the Novation under the Novation Agreement is approximately RMB39.3 million and

will be settled prior to [REDACTED]. The final settlement amount would be recognised as a

deemed distribution to shareholders. For more details of our Reorganisation, please refer to

the section headed “History, Reorganisation and Corporate Structure – Reorganisation” and

Note 1.2 to our accountant’s report in Appendix I to this document for more details.

Upon completion of our Reorganisation, a total amount of approximately RMB518.8

million was recognised as deemed distribution to shareholders, primarily included

consideration of approximately RMB122.4 million for Royal Karry’s acquisition of Shanghai

Shanyu, the final settlement amount of approximately RMB39.3 million under the Novation

Agreement, and amounts due from shareholders which represented our cash outflow to Third

Harbor Construction as deemed distribution to shareholders. For more details, please refer to

section headed “Financial Information – Liquidity and capital resources – Cash flow – Cash

flows (used in)/generated from investing activities” and Note 1.3 to our accountant’s report in


For illustration purpose only, we set out below the key balance sheet items as at 30 April

2018 as if we completed the Reorganisation and settled the final payment with Third Harbor

Construction under the Novation Agreement by 30 April 2018:

As at 30 April

2018

Assuming

Reorganisation was

completed and we had

settled the final

payment with Third

Harbor Construction

under the Novation

Agreement as at 30

April 2018

RMB’000 RMB’000

Amount due from Shareholders . . . . . . . . . . 296.7 nilCash and cash equivalents . . . . . . . . . . . . . 269.7 108Total equity . . . . . . . . . . . . . . . . . . . . . . . . . . 762.5 243.7


– 352 –


NO MATERIAL ADVERSE CHANGE

Our Directors confirm that, save as disclosed in the above paragraph headed “Recent

Development”, there had been no material adverse change in our financial or trading position

since 30 April 2018 and there had been no event since 30 April 2018 which would materially

affect the information shown in the accountant’s report in Appendix I to this document.

UNAUDITED PRO FORMA STATEMENT OF ADJUSTED NET TANGIBLE ASSETS

The following is an illustrative and pro forma statement of adjusted net tangible assets of

the Group prepared in accordance with Rule 4.29 of the Listing Rules is for illustrative

purposes only, and is set out below to illustrate the effect of the [REDACTED] on the net

tangible assets of the Group attributable to the owners of the Company as at 30 April 2018 as

if the [REDACTED] had taken place on 30 April 2018.

The unaudited pro forma statement of adjusted net tangible assets has been prepared for

illustrative purposes only and because of its hypothetical nature, it may not give a true picture

of the combined net tangible assets of the Group had the [REDACTED] been completed as at

30 April 2018 or any future date.

Audited

Combined Net

Tangible

Assets of

the Group

Attributable to

Owners of the

Company

as at

30 April 2018

Deemed

distribution

to the

shareholders

arising

from the

Reorganisation

Estimated

[REDACTED]

from the

[REDACTED]

Unaudited Pro

Forma

Adjusted

Net Tangible

Assets

Attributable to

Owners of

the Group

Unaudited Pro Forma Adjusted

Net Tangible Assets per Share

Note 1 Note 3 Note 2 Note 4 Note 5RMB’000 RMB’000 RMB’000 RMB’000 RMB HK$

[REDACTED] 762,037 [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED][REDACTED] 762,037 [REDACTED] [REDACTED] [REDACTED] [REDACTED] [REDACTED]

Notes:

1. The audited consolidated net tangible assets attributable to owners of the Company as at 30 April 2018 isextracted from the Accountant’s Report set forth in Appendix I to this document, which is based on the auditedcombined net assets of our Group attributable to the owners of our Company as at 30 April 2018 ofapproximately RMB762,529,000 with an adjustment for the intangible assets as at 30 April 2018 ofapproximately RMB492,000.


– 353 –


2. The estimated [REDACTED] from the [REDACTED] are based on [REDACTED] and the indicative[REDACTED] of HK$[REDACTED] per [REDACTED] and HK$[REDACTED] per [REDACTED], being the lowend to high end of the indicative [REDACTED] range, respectively, after deduction of the [REDACTED] feesand other related expenses, excluding [REDACTED] of approximately RMB[REDACTED] andRMB[REDACTED] which has been accounted for in the combined statement of comprehensive income for theyear ended 31 December 2017 and the period ended 30 April 2018 respectively, and does not take account ofany Shares which may be issued upon the exercise of the [REDACTED], or any Shares which may be issuedupon exercise of any options which may be granted under the Share Option Scheme.

3. This represents the deemed distribution to the shareholders arising from our Reorganisation. Such deemeddistribution will be accounted for in the statement of changes in equity of the Group for the year ending 31December 2018.

4. The unaudited pro forma adjusted net tangible assets per Share is arrived at after adjustments referred to inthe preceding paragraphs and on the basis that a total of [REDACTED] Shares were in issue (including Sharesin issue as at the date of this document and those Shares to be issued pursuant to the [REDACTED] and the[REDACTED]) assuming that the [REDACTED] had been completed on 30 April 2018 but taking no account ofany shares which may be issued upon the exercise of the [REDACTED], or any Shares which may be issuedupon exercise of any options which may be granted under the Share Option Scheme.

5. For the purpose of this unaudited pro forma adjusted net tangible assets, the balances stated in Renminbi areconverted into Hong Kong dollars at a rate of RMB0.8830 to HKD1.0000, being the monthly average PBOCrate prevailing on the Latest Practicable Date. No representation is made that Renminbi amounts have been,could have been or may be converted to Hong Kong dollars, or vice versa, at that rate.

6. No adjustment has been made to the unaudited pro forma adjusted net tangible assets to reflect any tradingresults or other transactions of the Group entered into subsequent to 30 April 2018.


– 354 –


FUTURE PLANS

Please refer to the sections headed “Business – Future strategies” and “Financial

Information – Capital expenditures – Planned capital expenditures” in this document for a

detailed description of our future plans and planned capital expenditures.

REASONS FOR [REDACTED]

Our Directors believe that the [REDACTED] will greatly benefit our Group for the following

reasons:

• Enhance the profile of our Group

Given that a listed company is subject to ongoing regulatory compliance for

announcements, financial disclosure and corporate governance, the [REDACTED]

of our Group will enable us to be considered more favourably by our customers,

which mainly comprise Chinese state-owned enterprises and public and private

companies, when tendering for contracts.

• Gain access to capital marketing funding to assist our project capital needs and

strengthen our cash flow

The larger project owners increasingly require their contractors/subcontractors to

show their ability to bear more upfront costs, including requiring the

contractors/subcontractors to put down more performance deposits or bear more

construction costs, such as costs of raw materials, subcontracting and labour,

and/or accept longer receivable collection period. Project owners also tend to pay

less advanced payment to contractors/subcontractors at the commencement of the

projects. The [REDACTED] of our Group will help us to fund our project capital

needs and strengthen our cash flow position, which in turn, will also enable us to

increase our bargaining power in terms of procurement as we have the ability to

procure more raw materials and/or subcontracting services with more favourable

commercial terms at the commencement of projects and hence, increase our

competitiveness to undertake more sizeable projects.

• Control our debt financing costs and strengthen our financial position

Our Group requires funds during the course of construction, particularly the early

stage of construction period, which are generally obtained from different sources

such as internal resources and bank borrowing. In choosing between debt financing

and equity financing, our Directors consider that the nature of the port, waterway and

marine engineering industry, which the cash outflow for payment of subcontracting

fees, construction material costs and labour costs, as well as the issue of

performance deposits, is often incurred in the early stage of our projects, and our

cash and availability have to be in place once our customers confirm the construction

FUTURE PLANS AND [REDACTED]

– 355 –


contracts with us. During the Track Record Period, although we primarily funded ouroperations internally, we had experienced a substantial portion of our availablefunding being used for mid to large-scale projects and took up most of our fundingcapacity during the Track Record Period. Based on our previous operationalexperience especially considering the payment terms of our projects, taking intoaccount the cash outflow for our projects and other various costs to be incurred eachmonth, which amounted to be approximately RMB70 million in average for the eightmonths ended 31 August 2018, we need to have cash available of approximatelyRMB100 million in order to maintain our liquidity in case if any project owners delayour project payment. We have considered the possibility to raise our fund throughdebt financing. Nevertheless, our Directors confirm that we may encounterdifficulties to raise mid to long term large amount of fund with favourable termsthrough debt financing and/or increasing the amount of banking facilities. Further,we have also encountered difficulties to raise our fund through finance leasing of ourvessels and/or construction equipment. Although during the Track Record Period,we had pledged our vessels to secure certain short-term bank borrowings, suchamount of short-term bank borrowings was not enough to support our futurebusiness expansion, especially, after our commencement of business in SoutheastAsia in 2016, our vessels are often designated to various construction sites outsidethe PRC, which makes them even unacceptable to banks as collateral. In addition,the construction equipment used for our port, waterway and marine engineeringbusiness generally have small value with expected useful lives of only five years,which are also considered to be not suitable or meaningful for finance leasing. As aresult of the above, our current available cash is not sufficient enough to support ourimmediate needs as we still require working capital to maintain our current capacityfor existing projects, as well as extra funding to expand our capacity to undertakemore projects and sizeable projects and our further business expansion in the PRCand Southeast Asia. We believe that it is crucial to maintain a robust liquidity positionat all times, particularly in the form of steady and strong level of cash balance, to (i)ensure smooth business operations, (ii) be able to tender for more projects andlarger scale projects, and (iii) be able to devote sufficient resources in theimplementation of our business expansion.

Furthermore, most of our customers would consider the financial viability of ourGroup as reflected by its debts or leverage ratio to be one of the critical criteria forselecting contractors in the tendering process. Hence, debt financing may negativelyaffect the financial viability of our Group and affect our competitiveness in tendering.Our Directors consider that funds raised from the issue of equity are a committedsource of fund that do not entail a maturity date. As such, our Directors are of theview that equity financing is a more appropriate source at this stage and could helpus to control our finance costs in the long run. If we are listed, we may have a betterposition to negotiate with banks and financial institutions when we require debtfinancing.

Our Directors also consider that the [REDACTED] will allow our Group to broadenour shareholder base, strengthen our capital base and provide an efficient andsustainable fund raising platform for our Group to raise further capital in the futurewhen necessary.


– 356 –


[REDACTED]

We estimate that the aggregate [REDACTED] of the [REDACTED] (after deducting[REDACTED] fees and estimated expenses payable by us in connection with the[REDACTED], and assuming an [REDACTED] of HK$[REDACTED] per [REDACTED], beingthe mid-point of the indicative [REDACTED] of HK$[REDACTED] to HK$[REDACTED] per[REDACTED]) will be approximately HK$[REDACTED] million, assuming that the[REDACTED] is not exercised. We currently intend to apply such [REDACTED] in the followingmanner:

• Approximately [REDACTED]%, or HK$[REDACTED] million of the [REDACTED]from the [REDACTED] to our Company, to be used primarily to fund our capitalneeds and cash flow under our existing projects in both of the PRC and SoutheastAsia, namely, (i) Jiangsu Taizhou Port, Jingjiang Port Phase 1 ReconstructionProject (“Project I”), and (ii) Wharf Construction Project for Design, Procurementand Construction (Main Contractor) Indonesia SULBAGUT-1 2x50MW (Net) Coal-Fired Power Plant (“Project II”). During the Track Record Period, we typically submitwork-in-progress applications to our customers for our projects on a monthly basis,which generally include (i) our estimated value of work and/or services completedduring the month between our previous and current monthly cut-off dates; and (ii)proposed payment amount to be settled by our customers based on such estimatedvalue of work and/or services completed and calculated at certain percentage inaccordance with the stipulated terms and conditions of the respective contracts.Once our customers agree with our work-in progress applications, they will arrangepayment in accordance with the payment amount in our work-in-progressapplications within a specified period of time according to the terms specified in thecontracts, normally from 30 to 60 days. For project I, we will only be able to bill ourcustomer (i) 40% of our total contract value upon completion of the project with acredit term of approximately 30 to 60 days; (ii) 30% of our total contract value uponcompletion of the project with a credit term of two years; and (iii) the rest of our totalcontract value upon expiry of the retention period with a credit term of two years. ForProject II, except for the 20% prepayment to be paid by our customer at thebeginning of Project II, we will only be able to bill our customer (i) 20% of our totalcontract value upon completion of the first phase as specified in the contract; (ii) 30%of our total contract value upon completion of the project; and (iii) the rest of our totalcontract value upon expiry of the retention period, all with a credit term ofapproximately 30 to 60 days. Prior to our billing, all of our port and waterwayengineering work and/or services performed under Project I and Project II will becounted as our contracts assets as at relevant balance sheet date. In addition, ourDirectors also expect that our retention receivables will be increased due to thesetwo projects as the customers of these two projects will withhold 30% of our totalcontract value of the projects as retention money as compared to same for our otherprojects, which is typically around 5% to 10% of our total contract value. In order tocompensate the longer payment terms required and more retention money to be heldby our customers under Project I and Project II, the pricing of these two projects arehigher than our similar projects stated in our tendering documents and signedproject contracts. Our Directors are willing to accept such longer payments to gainmore profit for these two projects because the customers for these two projects areboth Chinese state-owned enterprises with solid background and financialconditions, good reputation, credibility and payment records. Nevertheless, weexpect to use the [REDACTED] from the [REDACTED] tobetter manage the


– 357 –


mismatch of our working capital needed for these two projects. We currently do notplan to fund these two projects with our own working capital as we intend to maintainsufficient working capital to undertake more and/or sizeable projects if we are notable to obtain external funding on time. Currently, we have not commenced ProjectI, and have commenced Project II in September 2018 and are in the preliminarypreparation stage for the construction. Our Directors will closely monitor theprogress of these two projects and also the [REDACTED] from the [REDACTED] toevaluate our new and/or potential projects, if any, to ascertain our working capitalneeds for different projects from time to time. The table below sets out the[REDACTED] required based on expected payment terms of our customers andsuppliers and/or subcontractors for these two projects for the periods indicated:

Project nameExpectedcompletion date 20184Q 20191Q 20192Q 20193Q 20194Q

Total[REDACTED]required

(RMB in million)

Project I December 2019 11 9 13 5 3 41

Project II July 2019 N/A 20.5 N/A N/A N/A 20.5

• Approximately [REDACTED]%, or HK$[REDACTED] million of the [REDACTED]from the [REDACTED] to our Company, is expected to be used primarily forpurchasing new vessels and construction equipment, including a new crane vessel,mixer vessel and semi-submersible barge, to undertake more port infrastructureprojects as well as to enhance the overall efficiency and profit margin of our wharfconstruction and waterway engineering projects. During the Track Record Period,we typically used our own vessels and construction equipment to carry out themajority of our port infrastructure work as they are designed with requiredspecifications and have provided us with higher flexibility in terms of usage anddesignation. Majority of our self-owned vessels and construction equipment weredesignated to various construction sites during the Track Record Period dependingon our project needs except for few that needed for regular repair and/ormaintenance. We also lease some vessels and construction equipment from thirdparties to conduct some of our port and waterway engineering projects. For the threeyears ended 31 December 2015, 2016 and 2017 and the four months ended30 April 2018, our leasing fees for vessels and construction equipment amounted toapproximately RMB0.4 million, RMB3.6 million, RMB22.5 million and RMB13.3million, respectively. According to Frost & Sullivan, while construction of generalwharfs in the PRC is nearly reaching its saturation point after years of fastdevelopment, construction of specialised wharfs is still in developing stage. It isexpected that the market size of the specialised wharf engineering market will growat a CAGR of approximately 5.5% from 2017 to 2022, higher than that of the overallport infrastructure engineering market, which will be approximately 5%, during thesame period. We believe that having our own crane vessel, mixer vessel andsemi-submersible barge will enable us to bid and undertake more port infrastructureprojects, in particular, the specialised wharf projects. Further, taking into accountsome of the goods that need to be loaded and uploaded in specialised wharfs, suchas, chemical products or hazardous gases, based on our industrial


– 358 –


experiences over the years, the construction sites of some of specialised wharfs areoften in the rural areas. As a result, our leasing and maintenance fees for vesselsand construction equipment in those rural areas would be relatively high. Undersome extreme circumstances, we may not even be able to lease vessels andconstruction equipment that are required for our projects in those rural areas. Forexample, we incurred difficulties to lease concrete mixer vessel in Dongying,Shandong province, the PRC for our China National Offshore Oil CorporationDongying Port Liquid Chemical Product Wharf and lease crane vessel in Panjin,Liaoning province, the PRC for our Panjin Port Rongxing Port Area West Zone LiquidChemical Berth Project. Due to lack of the specified vessels required for these twoconstruction sites, we had to lease and transfer the concrete mixer vessel fromShanghai to Dongying and lease and transfer the crane vessel from Jiangsu toLiaoning, which caused us to incur longer time and higher economic costs. Havingconsidered (i) the growth rate of the specialised wharf engineering market in thePRC, (ii) our further business expansion in Southeast Asia, in particular, we intendto bid for the second phase of Brunei Petrochemical Engineering Port andSupporting Construction Project which may commence in 2020 taking into accountour competitive strength being the main contractor of the first phase of BruneiPetrochemical Engineering Port and Supporting Construction Project, (iii) theremaining useful life of the majority of our current construction equipment whichwere purchased in around 2016 and 2017, and (iv) our generally increased leasingand maintenance fees for vessels and construction equipment during the TrackRecord Period and expected longer time and higher costs if we lease them in certainareas, especially rural areas, we expect that we have to purchase new vessels andconstruction equipment by no later than 2020 to replace or expand our currentconstruction equipment. The table below sets out the details of vessels andconstruction equipment we intend to purchase with the allocated [REDACTED] fromthe [REDACTED] to be allocated and the cost benefit analysis on acquiring versusleasing of such vessels and construction equipment:

Type of vessel orconstructionequipment

Segment andproposed usage Unit(s)

[REDACTED] tobe allocated

(HK$ in million)

Estimatedannual

leasing fee(RMB in million)(1)

Estimatedannual

operating cost(RMB in million)(2)

Latest timeframe ofpurchase(3)

Engineeringvessels

Crane vessel Port infrastructure(both general andspecialisedwharfs)/primarilyuse for overwaterloading andunloading of thelargecargos/items,such as hostingprefabricatedparts

1 6.5 2.8 1.7 September2020


– 359 –





(HK$ in million)

Estimatedannual


Estimatedannual



Mixer vessel Port infrastructure(both general andspecialisedwharfs)/primarilyuse for overwaterconcrete mixing

1 3 3.2 2.1 August 2020

Semi-submersiblebarge

Port infrastructure(both general andspecialisedwharfs)/primarilyuse for overwatertransporting orshipment of largecargos/items,such aslarge/heavy steelstructure parts

1 15 3.6 2.8 March 2020

Other constructionequipment

Lifting machinery Port infrastructure(both general andspecialisedwharfs) andwaterwayengineering/primarily use foroverland loadingand unloading ofthe largecargos/items,such as hostingprefabricatedparts

4 6.9 2.5 1.5 June 2019,November2019,June 2020andOctober2020

Concrete machinery Port infrastructure(both general andspecialisedwharfs)/primarilyuse for overlandconcrete mixing,transfer andinfusion

11 6.2 2.4 2 1 in August2019, 2 inSeptember2019, 3 inOctober2019, 3 inMarch2020, and2 inNovember2020


– 360 –





(HK$ in million)

Estimatedannual


Estimatedannual



Earthmovingmachinery

Port infrastructure(both and generaland specialisedwharfs) andwaterwayengineering/primarily use foroverland loadingand transfer ofthe smallmaterials/items,such as earthstone

6 3.7 1.4 1.1 2 inSeptember2019, 1 inNovember2019, 2 inJune 2020,and 1 inJuly 2020

Notes:

1. Estimated annual leasing fee is based on our historical leasing fees or third-party quotations forthe relevant vessels and construction equipment, taking into account our expected project needsin 2019 for such vessels and construction equipment.

2. Estimated annual operating cost is based on our estimated charges for owning the relevantvessels and construction equipment, taking into account the depreciation, maintenance andlabour costs for operating such these vessels and construction equipment and our expectedproject needs in 2019 for such vessels and construction equipment.

3. The latest timeframe of purchase is based on our current expansion plan.

4. The expected useful life of engineering vessels and other construction equipment is 25 years andfive years, respectively.


– 361 –


• Approximately [REDACTED]%, or HK$[REDACTED] million of the [REDACTED]

from the [REDACTED] to our Company, is expected to be used primarily for the

recruitment of additional high quality comprehensive talent equipped with extensive

port construction knowledge and working experience for both of our operations in the

PRC and Southeast Asia. Further, we also plan to establish a management centre in

Hong Kong to oversee our overseas projects. We intend to recruit the following

positions:

Position

Specific experiences and qualification required

Number of

recruits

Minimum academic

requirement

Minimum years

of experience Field of experience

Southeast AsiaMarketing manager Master in marketing 6 Management or marketing

related working experience

with large domestic or

international construction

companies

1

Project manager Bachelor in port

construction related

8 Able to formulate cost budgets,

construction proposals as well

as control and monitor the

entire construction process

1

Technical chief engineer Bachelor in port

construction related

5 Capable of formulating technical

solutions as well as solve

technical problems

1

Health and safety

executive manager

Bachelor in

management of

construction safety

related

5 Capable of being fully

responsible for the

development, construction

and maintenance of a health

and safety executive

management system; able to

assess and examine the

ability of health and safety

executives; have had the

experience in leading the

implementation, supervision

and execution of a project’s

health and safety executive

management system; be

familiar with health and safety

executive risk control in the

entire life cycle of construction

projects

1


– 362 –


Position


Number of

recruits

Minimum academic

requirement

Minimum years


Translator Vocational certificate

on relevant language

Familiar with local government

and business environment

1

Project supervisor

(construction

supervision/construction

technology


safety supervision)

Bachelor in port

construction related;

hold a implementer

certificate awarded

by the relevant

government authority

3 Have experience in construction


technology


safety supervision

3

PRCProject manager Bachelor in port

construction related;

professional

qualification of first

grade constructor,

intermediate

engineer or above in

port and waterway

engineering related;

Safety B License

8 Able to formulate project cost

budgets, construction plans as

well as control and supervise

the entire construction

process

2

Vice finance manager Bachelor in finance

management related

6 Able to coordinate with the

finance manager and finance

director in establishing a

budgeting, financial settlement

as well as tax reporting

system; be able to effectively

coordinate matching

operations for financial

resource; participate in the

implementation of finance

strategic planning; help

establish a complete and

effective internal audit

mechanism

1


– 363 –


Position


Number of

recruits

Minimum academic

requirement

Minimum years


Hong KongVice general manager Master’s degree in

finance,

management or

securities

10 Familiar with operations of the

port and waterway

engineering industry;

understand developments of

the construction markets in

the PRC and countries under

China’s Belt and Road

initiative; team focused

1

Vice marketing manager Master in marketing 8 (minimum of 3

years as a

marketing

supervisor for a

Hong Kong

company)

Have experience in brand

management or promotion of

products, consolidation of

sales and sales resourcing

1

Chief financial officer Master’s degree in

finance related;

possess a certified

public accountant

qualification or a

certificate issued by

the Association of

Chartered Certified

Accountants;

10 (minimum of

three years

should be in

relation to Hong

Kong tax)

Understand the operation of the

Hong Kong capital market as

well as overseas financial

systems and financial

reporting requirements; have

the ability to be responsible

for the overall finance

budgeting, verifying and

settlement system; be able to

implement capital operation

plans; have had practical

operational experience in

budget controlling; be well

versed in tax laws; be familiar

with investment and financial

management; have had rich

experience in financing as

well as mergers and

acquisitions; be experienced

in listing compliance

1

• Approximately [REDACTED]%, or HK$[REDACTED] million of the [REDACTED]from the [REDACTED] to our Company, is expected to be used primarily for strategicequity investment into design institute or research and development centre focusingon port, waterway and marine engineering industry within two to three years toachieve vertical business integration and enhance our integrated service


– 364 –


capabilities (with reference to certain similar equity investment conducted by listedcompanies as our basis). In particular, we will consider to invest into small tomedium-sized design institute or research and development centre possessing atleast 25 industrial experts and/or technologists primarily focusing on port andwaterway engineering. According to Frost & Sullivan, the design institutes aretypically engaged at the very beginning of the port, waterway and marineengineering projects and the design and research and development related work isgenerally more profitable than the construction related work with a gross profitmargin of at least 20%. Further, the total revenue of survey and/or design companiesfor construction industry in the PRC reached approximately RMB4.3 trillion in 2017,increasing from approximately RMB1.6 trillion in 2012 with a CAGR of approximately21.8%, according to Frost & Sullivan. In addition, based on the public availableinformation of several A-share listed construction companies, the profit margin oftheir engineering design, research and development or related work and/or servicesranged from approximately 30% to 55%, which were much higher than theirconstruction related work. As such, we believe that our strategic investment into therelevant design institute or research and development centre will enable us to obtainthe first-mover advantage to get involved in the potential projects at much earlierstage, which in turn, will help us to enhance our ability to win projects and hence,improve our revenue and profitability. Further, according to Frost & Sullivan, most ofthe non-stated-owned contractors engaging in the port, waterway and marineengineering industry in the PRC have not yet established their own design andresearch development division. We believe that our investment strategy will alsoenhance our design, research and development capability for port infrastructureengineering so that we can expand our business scope and have the capability toexecute all the activities from design, procurement, construction to handover of theprojects to our clients, which in turn, will increase our competitiveness andprofitability. Taking into account the consideration of the target which is expected tobe ranged from approximately RMB50 million to RMB120 million, we intend to investinto only one small to medium-sized design institute or research and developmentcentre. While we continue to evaluate our business and potential investmentopportunity, as at the Latest Practicable Date, we had not identified any target, nor hasanyone on our behalf, initiated any discussions, directly or indirectly, with respect toidentifying any target; and

• the remaining approximately HK$[REDACTED] million, representing approximately[REDACTED]% of the [REDACTED] from the [REDACTED], is expected to be usedprimarily to fund our working capital and for general corporate purposes.

If the [REDACTED] is set at the high end of the indicative [REDACTED] range, beingHK$[REDACTED] per [REDACTED], the [REDACTED] of the [REDACTED] (assuming thatthe [REDACTED] is not exercised) will increase by approximately HK$[REDACTED] million. Ifthe [REDACTED] is set at the low end of the indicative [REDACTED], being HK$[REDACTED]per Share, the [REDACTED] of the [REDACTED] (assuming that the [REDACTED] is notexercised) will decrease by approximately HK$[REDACTED] million. We will adjust theallocation of the [REDACTED] for the above purposes on a pro-rata basis.


– 365 –


If the [REDACTED] is exercised in full, the [REDACTED] of the [REDACTED] will

increase by approximately HK$[REDACTED] million, assuming the [REDACTED] is set at the

mid-point of the indicative [REDACTED]. If the [REDACTED] is set at the high end of the

indicative [REDACTED], the [REDACTED] of the [REDACTED] (including the [REDACTED]

from the exercise of the [REDACTED]) will increase by approximately HK$[REDACTED]

million. If the [REDACTED] is set at the low end of the indicative [REDACTED] range, the

[REDACTED] of the [REDACTED] (including the [REDACTED] from the exercise of the

[REDACTED]) will decrease by approximately HK$[REDACTED] million. We intend to apply

the additional [REDACTED] from the exercise of the [REDACTED] to the above purposes on

a pro-rata basis.

Should our Directors decide to reallocate the intended [REDACTED] to other business

plans and/or new projects of our Group to a material extent and/or there is to be any material

modification to the [REDACTED] as described above, we will make appropriate

announcement(s) in due course.

To the extent that the [REDACTED] of the [REDACTED] are not immediately required for

the above purposes or if we are unable to effect any part of our future development plans as

intended, we may hold such funds in short-term deposits with licensed banks and authorised

financial institutions in Hong Kong for so long as it is in our best interests. We will also disclose

the same in the relevant annual report.


– 366 –


[REDACTED]

[REDACTED]

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[REDACTED]

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[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

[REDACTED]

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[REDACTED]

STRUCTURE AND CONDITIONS OF THE [REDACTED]

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[REDACTED]


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[REDACTED]


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[REDACTED]

HOW TO APPLY FOR [REDACTED]

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The following is the text of a report set out on pages I-1 to I-3, received from the

Company’s reporting accountant, PricewaterhouseCoopers, Certified Public Accountants,

Hong Kong, for the purpose of incorporation in this document. It is prepared and addressed to

the directors of the Company and to the Sole Sponsor pursuant to the requirements of HKSIR

200 Accountants’ Reports on Historical Financial Information in Investment Circulars issued

by the Hong Kong Institute of Certified Public Accountants.

[Draft]

ACCOUNTANT’S REPORT ON HISTORICAL FINANCIAL INFORMATION TO THE

DIRECTORS OF WATTS INTERNATIONAL MARITIME ENGINEERING LIMITED AND

ORIENT CAPITAL (HONG KONG) LIMITED

Introduction

We report on the historical financial information of Watts International Maritime

Engineering Limited (the “Company”) and its subsidiaries (together, the “Group”) set out on

pages I-4 to I-73, which comprises the combined statements of financial position as at 31

December 2015, 2016, 2017 and 30 April 2018, the company statements of financial position

as at 31 December 2017 and 30 April 2018, and the combined statements of comprehensive

income, the combined statements of changes in equity and the combined statements of cash

flows for each of the periods then ended (the “Track Record Period”) and a summary of

significant accounting policies and other explanatory information (together, the “Historical

Financial Information”). The Historical Financial Information set out on pages I-4 to I-73 forms

an integral part of this report, which has been prepared for inclusion in the document of the

Company dated [REDACTED] (the “Document”) in connection with the initial [REDACTED] of

shares of the Company on the [REDACTED].

Directors’ responsibility for the Historical Financial Information

The directors of the Company are responsible for the preparation of Historical Financial

Information that gives a true and fair view in accordance with the basis of presentation and

preparation set out in Notes 1.3 and 2.1 to the Historical Financial Information, and for such

internal control as the directors determine is necessary to enable the preparation of Historical

Financial Information that is free from material misstatement, whether due to fraud or error.

APPENDIX I ACCOUNTANT’S REPORT

– I-1 –


Reporting accountant’s responsibility

Our responsibility is to express an opinion on the Historical Financial Information and to

report our opinion to you. We conducted our work in accordance with Hong Kong Standard on

Investment Circular Reporting Engagements 200, Accountants’ Reports on Historical

Financial Information in Investment Circulars issued by the Hong Kong Institute of Certified

Public Accountants (“HKICPA”). This standard requires that we comply with ethical standards

and plan and perform our work to obtain reasonable assurance about whether the Historical

Financial Information is free from material misstatement.

Our work involved performing procedures to obtain evidence about the amounts and

disclosures in the Historical Financial Information. The procedures selected depend on the

reporting accountant’s judgement, including the assessment of risks of material misstatement

of the Historical Financial Information, whether due to fraud or error. In making those risk

assessments, the reporting accountant considers internal control relevant to the entity’s

preparation of Historical Financial Information that gives a true and fair view in accordance

with the basis of presentation and preparation set out in Notes 1.3 and 2.1 to the Historical

Financial Information in order to design procedures that are appropriate in the circumstances,

but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal

control. Our work also included evaluating the appropriateness of accounting policies used

and the reasonableness of accounting estimates made by the directors, as well as evaluating

the overall presentation of the Historical Financial Information.

We believe that the evidence we have obtained is sufficient and appropriate to provide a

basis for our opinion.

Opinion

In our opinion, the Historical Financial Information gives, for the purposes of the

accountant’s report, a true and fair view of the financial position of the Company as at 31

December 2017 and 30 April 2018 and the combined financial position of the Group as at 31

December 2015, 2016 and 2017 and 30 April 2018 and of its combined financial performance

and its combined cash flows for the Track Record Period in accordance with the basis of

presentation and preparation set out in Notes 1.3 and 2.1 to the Historical Financial

Information.

Review of stub period comparative financial information

We have reviewed the stub period comparative financial information of the Group which

comprises the combined statements of comprehensive income, changes in equity and the

cash flows for the four months ended 30 April 2017 and other explanatory information (the

“Stub Period Comparative Financial Information”). The directors of the Company are

responsible for the preparation and presentation of the Stub Period Comparative Financial

Information in accordance with the basis of presentation and preparation set out in Notes 1.3

and 2.1 to the Historical Financial Information. Our responsibility is to express a conclusion on


– I-2 –


the Stub Period Comparative Financial Information based on our review. We conducted our

review in accordance with Hong Kong Standard on Review Engagements 2410, Review of

Interim Financial Information Performed by the Independent Auditor of the Entity issued by the

HKICPA. A review consists of making inquiries, primarily of persons responsible for financial

and accounting matters, and applying analytical and other review procedures. A review is

substantially less in scope than an audit conducted in accordance with Hong Kong Standards

on Auditing and consequently does not enable us to obtain assurance that we would become

aware of all significant matters that might be identified in an audit. Accordingly, we do not

express an audit opinion. Based on our review, nothing has come to our attention that causes

us to believe that the Stub Period Comparative Financial Information, for the purposes of the

accountant’s report, is not prepared, in all material respects, in accordance with the basis of

presentation and preparation set out in Notes 1.3 and 2.1 to the Historical Financial

Information.

REPORT ON MATTERS UNDER [REDACTED] AND THE COMPANIES (WINDING UP AND

MISCELLANEOUS PROVISIONS) ORDINANCE

Adjustments

In preparing the Historical Financial Information, no adjustments to the Underlying

Financial Statements as defined on page I-4 have been made.

Dividends

We refer to Note 13 to the Historical Financial Information which states that no dividends

have been paid by Watts International Maritime Engineering Limited in respect of the Track

Record Period.

No statutory financial statements for the Company

No statutory financial statements have been prepared for the Company since its date of

incorporation.

[PricewaterhouseCoopers]

Certified Public Accountants

Hong Kong

[REDACTED]


– I-3 –


I HISTORICAL FINANCIAL INFORMATION OF THE GROUP

Preparation of Historical Financial Information

Set out below is the Historical Financial Information which forms an integral part of this

accountant’s report.

The financial statements of the Group for the Track Record Period, on which the Historical

Financial Information is based, were audited by PricewaterhouseCoopers in accordance with

Hong Kong Standards on Auditing issued by the HKICPA (“Underlying Financial Statements”).

The Historical Financial Information is presented in Renminbi (“RMB”) and all values are

rounded to the nearest thousand (RMB’000) except when otherwise indicated.


– I-4 –


COMBINED STATEMENTS OF COMPREHENSIVE INCOME


30 April

Note 2015 2016 2017 2017 2018


(unaudited)

Revenue 5 1,124,654 1,263,785 1,411,968 217,876 268,548Cost of sales 5, 8 (1,004,712)(1,130,746)(1,252,831) (189,991) (226,261)

Gross profit 119,942 133,039 159,137 27,885 42,287Selling and distribution

expenses 8 (3,496) (2,431) (2,184) (872) (710)Administrative expenses 8 (26,148) (27,113) (44,191) (8,778) (12,349)Other operating expense 8 – – (437) – (37)Other income 6 – – 2,401 – 818Other gains/(losses) – net 7 137 15 539 (648) (830)

Operating profit 90,435 103,510 115,265 17,587 29,179Finance costs 10 (5,724) (3,271) (2,543) (1,034) (131)Finance income 10 154 50 391 64 911Share of net profit of

associates 291 333 173 33 –

Profit before income tax 85,156 100,622 113,286 16,650 29,959Income tax expense 11 (21,405) (25,659) (26,012) (3,891) (5,345)

Profit for the year/period 63,751 74,963 87,274 12,759 24,614

Other comprehensiveincome

Items that may bereclassified to profit orloss

Currency translationdifferences 23 – (118) (173) (61) (1,444)

Other comprehensiveincome for theyear/period, net of tax – (118) (173) (61) (1,444)

Total comprehensiveincome for theyear/periodattributable to ownersof the Company 63,751 74,845 87,101 12,698 23,170

Basic and dilutedearnings per share 12 N/A N/A N/A N/A N/A


– I-5 –


COMBINED STATEMENTS OF FINANCIAL POSITION


30 AprilNote 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000ASSETSNon-current assetsContract assets 5 248,187 222,662 97,085 96,325Property, plant and equipment 15 60,789 67,372 82,646 78,878Intangible assets 16 623 483 343 492Investments in associates 14 7,404 7,737 – –Trade and other receivables 19 13,477 2,444 13,848 2,410Deferred tax assets 26 – 1,217 12,093 12,246

330,480 301,915 206,015 190,351

Current assetsContract assets 5 93,175 169,581 138,005 160,088Inventories 18 413 2,677 5,730 10,394Trade and other receivables 19 777,099 762,014 977,413 772,416Amounts due from shareholders 29 321,808 344,942 294,484 296,681Financial assets at fair value through

profit or loss 20 – – 20,000 9,000Restricted cash 21 20,545 24,661 8,024 5,141Cash and cash equivalents 21 – 6,193 122,264 269,672

1,213,040 1,310,068 1,565,920 1,523,392

Total assets 1,543,520 1,611,983 1,771,935 1,713,743

EQUITYCapital and reservesCombined capital 23 – – 120,130 128,869Other reserves 23 – (118) (252) 121,428Retained earnings 24 332,403 407,366 487,618 512,232

Total equity 332,403 407,248 607,496 762,529

LIABILITIESNon-current liabilitiesTrade and other payables 25 105,911 111,813 181,450 32,295Deferred tax liabilities 26 3,001 2,091 11,760 11,531

108,912 113,904 193,210 43,826

Current liabilitiesTrade and other payables 25 1,028,154 1,076,492 940,508 869,978Income tax payables – – 7,038 7,122Contract liabilities 5 74,051 14,339 23,683 30,288

1,102,205 1,090,831 971,229 907,388

Total liabilities 1,211,117 1,204,735 1,164,439 951,214

Total equity and liabilities 1,543,520 1,611,983 1,771,935 1,713,743


– I-6 –


FINANCIAL POSITION OF THE COMPANY

As at

31 December

As at

30 April

Note 2017 2018

RMB’000 RMB’000

ASSETSNon-current assetsInvestment in subsidiaries 14a – 65,864

Current assetsCash and cash equivalents 21 – 123,140Amounts due from shareholders 8 –

Total assets 8 189,004

EQUITYCapitalShare capital 22 8 22Other reserves 22 – 188,983Accumulated losses – (1)

Total equity 8 189,004

Total equity and liabilities 8 189,004


– I-7 –


COMBINED STATEMENTS OF CHANGES IN EQUITY

NoteCombined

capitalOther

reservesRetainedearnings Total

RMB’000 RMB’000 RMB’000 RMB’000(Note (23))(Note (23))(Note (24))

At 1 January 2015 – – 268,652 268,652

Comprehensive incomeProfit for the year – – 63,751 63,751

Total comprehensive income – – 63,751 63,751

At 31 December 2015 – – 332,403 332,403

Comprehensive incomeProfit for the year – – 74,963 74,963Currency translation differences – (118) – (118)

Total comprehensive income – (118) 74,963 74,845

At 31 December 2016 – (118) 407,366 407,248

Comprehensive incomeProfit for the year – – 87,274 87,274Currency translation differences – (173) – (173)


Appropriation to statutory reserves – 39 (39) –Deemed distribution to shareholders

(Note 1.2) – – (6,983) (6,983)Contribution from shareholders 22 120,130 – – 120,130

At 31 December 2017 120,130 (252) 487,618 607,496

Comprehensive IncomeProfit for the period – – 24,614 24,614Currency translation differences – (1,444) – (1,444)

Total comprehensive income – (1,444) 24,614 23,170

Contribution from shareholders 22 8,739 123,124 – 131,863

At 30 April 2018 128,869 121,428 512,232 762,529

At 31 December 2016 – (118) 407,366 407,248

Comprehensive incomeProfit for the period – – 12,759 12,759Currency translation differences – (61) – (61)


At 30 April 2017 (unaudited) – (179) 420,125 419,946


– I-8 –


COMBINED STATEMENTS OF CASH FLOWS


30 April

Note 2015 2016 2017 2017 2018


(unaudited)

Cash flows from operatingactivities

Net cash generated from/(used in)operations 27(a) 143,868 60,042 20,897 (12,477) 11,572

Income tax paid (12,678) (8,207) (20,518) (1,316) (5,643)

Net cash generated from/(usedin) operating activities 131,190 51,835 379 (13,793) 5,929

Cash flows from investingactivities

Purchase of property, plant andequipment (654) (10,917) (26,048) (12,868) (44)

Purchase of intangible assets (126) – – – (203)Purchase of financial assets at fair

value through profit or loss – – (20,000) – –Proceeds from sale of financial

assets at fair value throughprofit or loss – – – – 11,000

Proceeds from disposal ofproperty, plant and equipment – 242 1,647 – –

Proceeds from disposal of interestin associates – – 7,737 – –

Interest received 154 50 391 64 911Advance granted to a related party (562) (11,216) (10,766) (4,243) –Net (increase)/decrease of

amounts due from shareholders (126,586) (23,134) 50,458 35,884 (2,197)Net cash (used in)/generated

from investing activities (127,774) (44,975) 3,419 18,837 9,467

Cash flows from financingactivities

Contribution from shareholders 23 – – 120,130 – 131,863Repayments of amounts due to a

related party (3,416) (827) (628) – –Distribution to shareholders (Note

1.2) – – (6,983) – –Net cash (used in)/generated

from financing activities (3,416) (827) 112,519 – 131,863

Net increase in cash and cashequivalents – 6,033 116,317 5,044 147,259

Cash and cash equivalents atbeginning of the year/period – – 6,193 6,193 122,264

Exchange gains/(losses) on cashand cash equivalents – 160 (246) (194) 149

Cash and cash equivalents atthe end of year/period 21 – 6,193 122,264 11,043 269,672


– I-9 –


II NOTES TO THE HISTORICAL FINANCIAL INFORMATION

1 GENERAL INFORMATION AND REORGANISATION

1.1 General information

Watts International Maritime Engineering Limited (the “Company”) was incorporated in the Cayman Islands on20 December 2017 as an exempted company with limited liability under the Companies Law, Cap. 22 (Law 3 of 1961,as consolidated and revised) of the Cayman Islands. The address of the Company’s registered office is 4th Floor,Harbor Place, 103 South Church Street, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands.

The Company, an investment holding company, and its subsidiaries (together, “the Group”) provide port,waterway and marine engineering business, including infrastructure construction of ports and waterway engineeringservices (collectively the “[REDACTED] Business”).

The ultimate controlling shareholders are Mr. Wang Shizhong, Mr. Ye Kangshun, Mr. Wang Xiuchun, Ms. ZhouMeng, Mr. Wang Shiqin, Mr. Wang Likai (“Controlling Shareholders”), who are parties acting collectively and havebeen controlling the Group companies since their incorporation.

1.2 Reorganisation

Immediately prior to the Reorganisation (as defined below), the [REDACTED] Business was carried outthrough Shanghai Third Harbor Benteng Construction and Engineering Co., Ltd. (“Third Harbor Construction”), awholly-owned subsidiary of Shanghai Watts Gallop Holding Group Co., Ltd., Shanghai Third Harbor BentengMaritime Engineering Co., Ltd. (“Third Harbor Maritime”), Pahaytc & Benteng JV Sdn Bhd (“Benteng Brunei”) and PT.Shanghai Third Harbor Benteng Construction and Engineering (“Benteng Indonesia”) (collectively, the “OperatingCompanies”), which were controlled by Controlling Shareholders. During the Track Record Period, Third HarborConstruction was also engaged in property leasing and trade service business (the “Excluded Business”).

In preparation for the [REDACTED] of the Company’s shares on [REDACTED], the Group underwent areorganisation (the “Reorganisation”), pursuant to which the [REDACTED] Business were transferred to theCompany. The Reorganisation involved the following steps:

(1) On 14 August 2017, Third Harbor Maritime, a company with limited liability, was established under thelaws of the PRC. The registered capital of Third Harbor Maritime was RMB120,000,000 and fully paid byThird Harbor Construction.

(2) On 30 November 2017, certain assets and liabilities, mainly including Property, Plant and Equipment(“transferred assets”) of the infrastructure construction of port, waterway and marine engineeringbusiness (the “Included Business”) of Third Harbor Construction, were transferred to Third HarborMaritime through Business and Asset Transfer Agreements dated on the same day (the “Business andAsset Transfer Agreements”) with a total consideration of approximately RMB6,983,000. Theconsideration was settled on 30 November 2017 and was recognised as a deemed distribution toshareholders in the combined statements of changes in equity.

On 6 July 2018, Third Harbor Construction and Third Harbor Maritime entered into a supplementalagreement to the Business and Asset Transfer Agreements (the “Novation Agreement”), pursuant towhich certain assets and liabilities, including trade and other receivables, trade and other payables andcontract assets relating to the Included Business were transferred to Third Harbor Maritime from ThirdHarbor Construction at a consideration of approximately RMB155,005,000 on 1 December 2017. Theconsideration was determined with reference to the carrying amount of these trade and otherreceivables, trade and other payables and contract assets as at 30 November 2017. Taking into accountof settlement or payment of these receivables collected and payables settled by Third HarborConstruction from 1 December 2017 to 6 July 2018, the final settlement amount for such novation andtransfer under the Novation Agreement is approximately RMB39,295,000. The settlement of theconsideration is recognised as a deemed distribution to shareholders.

By the completion date of the Reorganisation, assets and liabilities of Included Business which will nottransfer to the Group mainly include amounts due from shareholders, deferred tax assets and restrictedcash, will be accounted for as a deemed distribution to the shareholders.


– I-10 –


(3) On 30 November 2017 and 1 December 2017, Shanghai Shanyu Construction and Engineering Co., Ltd.(“Shanghai Shanyu”) and Shanghai Yubo Construction and Engineering Co., Ltd. (“Shanghai Yubo”)were established in the PRC with limited liability under the laws of the PRC and were direct wholly-ownedsubsidiaries of Third Harbor Construction respectively. On 29 March 2018, Worldlink Resources Limited(“Worldlink”), a company incorporated under the laws of Hong Kong with limited liability, acquiredapproximately 2% of equity interest amounted to RMB2,440,000 in Shanghai Shanyu through capitalinjection agreement with Third Harbor Construction and thereafter Shanghai Shanyu became asino-foreign joint venture.

(4) (i) On 8 December 2017, HuaZi Holding Limited (“HuaZi Holding”) was incorporated in the BritishVirgin Islands (the “BVI”) with limited liability. Upon incorporation, Mr. Wang Shizhong subscribedfor entire equity interest in HuaZi Holding at a subscription price of US$1 per share.

(ii) On 8 December 2017, Ye Wang Zhou Holding Limited (“Ye Wang Zhou Holding”) was incorporatedin the BVI with limited liability. Upon incorporation, Mr. Ye Kangshun, Mr. Wang Xiuchun, Ms. ZhouMeng, Mr. Wang Shiqin and Mr. Wang Likai, (“Ye Wang Zhou Holding Shareholders”) subscribedfor 46.76%, 32.40%, 8.10%, 7.34% and 5.40% of equity interest, respectively, in Ye Wang ZhouHolding at a subscription price of US$1 per share.

(iii) On 8 December 2017, HZ&BT Development Holding Limited (“HZ&BT Development Holding”) wasincorporated in the BVI with limited liability. Mr. Li Hongwei, Mr. Li Weifei, Mr. Huang Guanming,Mr. Tang Jinxin, Mr. Pan Xinfa, Ms. Zhu Weier, Mr. Shen Jianli, Mr. Jin Yuhuan, Mr. Yan Xinsheng,Mr. Lu Yang, Ms. Wan Yun, Ms. Zhu Qiulian, Mr. Xu Mingsong and Mr. Chen Yan (the “HZ&BTDevelopment Holding Shareholders”) subscribed for 15.71%, 15.70%, 15.70%, 10.60%, 8.08%,7.85%, 5.34%, 5.34%, 3.92%, 3.92%, 1.96%, 1.96%, 1.96% and 1.96% of equity interest,respectively, in HZ&BT Development Holding at a subscription price of US$1 per share.

(5) On 14 December 2017, Shanghai Xingning Construction and Engineering Co., Ltd. (“ShanghaiXingning”) was established in the PRC with limited liability under the laws of the PRC and is a directwholly-owned subsidiary of Third Harbor Construction.

(6) On 20 December 2017, the Company was incorporated in the Cayman Islands with an authorisedordinary share capital of HK$380,000 divided into 38,000,000 shares of HK$0.01 each. On the samedate, one Share was allotted and issued, credited as fully-paid, to Harneys Fiduciary (Cayman) Limited,the Company’s initial subscriber who is an Independent Third Party, which was subsequently transferredto HuaZi Holding on the same date. On the same date, shares represents 56%, 18.52% and 25.48% ofthe equity interest of the Company were issued to HuaZi Holding, Ye Wang Zhou Holding and HZ&BTDevelopment Holding, respectively.

(7) (i) On 23 January 2018, Shanghai Xingning acquired the entire equity interest of Third HarborMaritime.

(ii) On 24 January 2018, Shanghai Yubo acquired the entire equity interest of Shanghai Xingning.

(iii) On 30 January 2018, Shanghai Shanyu acquired the entire equity interest of Shanghai Yubo.

(8) On 5 January 2018, HuaZi Rosely Limited (“HuaZi Rosely”), Maritime Vansun Limited (“MaritimeVansun”) and Engineering Prosper Limited (“Engineering Prosper”) were incorporated in the BVI withlimited liability and were wholly-owned by the Company. On 5 January 2018, the Company subscribedfor the entire equity interest in HuaZi Rosely, Maritime Vansun and Engineering Prosper respectively.

(9) (i) On 8 February 2018, Royal Karry HK Engineering Limited (“Royal Karry”) was incorporated inHong Kong with a share capital of HK$1 comprising 1 ordinary shares which is wholly-owned byHuaZi Rosely.

(ii) On 11 April 2018, the Company, HuaZi Holding, Ye Wang Zhou Holding, HZ&BT DevelopmentHolding, Mr. Wang Shizhong, Ye Wang Zhou Holding Shareholders, HZ&BT Development HoldingShareholders and Worldlink entered into a Subscription agreement pursuant to which Worldlinksubscribed for 180,000 new shares representing 9.00% of the total issued share capital of theCompany in the consideration of US$9,584,744.54 (equivalent to approximately RMB60,000,000)as enlarged by the subscription. Upon completion of this step, the issued share capital of theCompany is owned as to 50.9600%, 16.8532%, 23.1868% and 9.0000% by HuaZi Holding, YeWang Zhou Holding, HZ&BT Development Holding and Worldlink, respectively. The considerationwas fully paid and settled.


– I-11 –


(10) On 1 May 2018, Royal Karry entered into an share transfer agreement with Third Harbor Constructionand Worldlink, pursuant to which Royal Karry agreed to acquire approximately 98% and 2% of the issuedshare capital in Shanghai Shanyu from Third Harbor Construction and Worldlink respectively, at aconsideration of US$18,901,805.12 (equivalents to approximately RMB120,000,000) andUS$384,336.71 (equivalent to approximately RMB2,440,000) respectively, based on the paid-upregistered capital at Shanghai Shanyu as at 31 March 2018, with reference to its then net asset value.The consideration was settled on 15 May 2018. Upon completion of this step, Shanghai Shanyu becamean indirect wholly-owned subsidiary (“Shanghai Shanyu WFOE”) of the Company and the considerationpaid would be accounted as a deemed distribution to shareholders.

(11) Pursuant to the relevant laws and/or regulation in Brunei, 1% equity interest of Benteng Brunei was heldby Pahaytc Sdn Bhd, an independent third party in Brunei, for and on behalf of Third Harbor Constructionthrough nominee agreement and separate trust arrangement. The terms in the agreements bind that themanagement powers, voting rights and the economic benefits are all belong to Third HarborConstruction. Third Harbor Construction is able to effectively control, recognise and receive all theeconomic benefit of the business and operations of Benteng Brunei. Accordingly, Third HarborConstruction controlled the entire equity interest of Benteng Brunei through the nominee agreement andseparate trust arrangement.

On 19 April 2018, Mr. Tang Liang transferred 99% of equity interest of Benteng Brunei to MaritimeVansun based on the net asset value of Benteng Brunei. On the same date, Third Harbor Constructionhas transferred the control of the remaining 1% of the equity interest to Maritime Vansun by newnominee agreement and separate trust arrangement. Pahaytc Sdn Bhd has acknowledged to hold the1% of the equity interest in Benteng Brunei for and on behalf of Maritime Vansun. As such, MaritimeVansun was the 100% beneficial owner of Benteng Brunei.

(12) Pursuant to the relevant and regulations in Indonesia, 33% equity interest of Benteng Indonesia are heldby PT. Indo Panshi Bumi (“PTPB”), an independent third party in Indonesia. Third Harbor Constructionhas entered into a series of contractual arrangements (“Contractual Arrangement”) with the PTPB toconsolidate control over and derive the economic benefits and risks from the remaining 33% of the equityinterest in Benteng Indonesia. The Contractual Arrangements consist of (i) cooperation agreements; (ii)loan agreement; (iii) pledge of shares agreements; (iv) assignment of rights to dividends agreements; (v)option agreements; (vi) power of attorney to sell agreement; (vii) power of attorney to vote agreement.The terms of these underlying arrangements provide that the management powers, voting rights and theeconomic benefits of Benteng Indonesia all belong to Third Harbor Construction. Accordingly, ThirdHarbor Construction controlled the entire equity interest of Benteng Indonesia through the contractualarrangements.

On 26 April 2018, Third Harbor Construction has transferred 67% of the equity interest of BentengIndonesia to Engineering Prosper based on the net asset value of Benteng Indonesia. On the same date,Third Harbor Construction, PTPB, Benteng Indonesia and Engineering Prosper have entered into aseries of new contractual arrangements and effectively transferred the control of the 33% of the equityinterest, which is held by PTPB to Engineering Prosper. As such, based on the series of new contractualarrangements entered into between Third Harbor Construction, Engineering Prosper and PTPB,Benteng Indonesia is effectively wholly owned by Engineering Prosper.

Upon completion of the Reorganisation, a total amount of approximately RMB518,784,000 was recognised asa deemed distribution to shareholders in the combined statements of changes in equity, and the Company becamethe holding company of the companies comprising the Group.


– I-12 –


Upon completion of the Reorganisation and as at the date of this report, the Group had interests in the followingsubsidiaries:

Name

Place ofincorporation/establishment

Date ofincorporation/establishment

Issued andPaid-in capital

As at the dateof this report

Principal activitiesand place of operation Note

HuaZi Rosely BVI 5 January 2018 USD1 100% Investment holding,BVI iMaritime Vansun BVI 5 January 2018 USD1 100% Investment holding, BVI iEngineering Prosper BVI 5 January 2018 USD1 100% Investment holding, BVI iRoyal Karry HK 8 February 2018 HKD1 100% Investment holding, HK iShanghai Shanyu

WFOEPRC 30 November

2017RMB122,440,000 100% Investment holding,

PRCii

Shanghai Yubo PRC 1 December2017

RMB120,000,000 100% Investment holding,PRC ii

Shanghai Xingning PRC 14 December2017

RMB120,000,000 100% Investment holding,PRC ii

Third Harbor Maritime PRC 14 August 2017 RMB120,000,000 100% Provision of engineeringand constructionwork, PRC

iii

Benteng Brunei Brunei 19 January 2016 BND25,000 100% Provision of engineeringand constructionwork, Brunei

iv

Benteng Indonesia Indonesia 21 September2016

IDR13,162,000,000 100% Provision of engineeringand constructionwork, Indonesia

v

i No audited statutory financial statements were issued for these subsidiaries as they have notestablished yet as at 31 December 2017.

ii No audited statutory financial statements were issued for these subsidiaries as they are not requiredunder the statutory requirements of their places of incorporation.

iii The statutory financial statements of Third Harbor Maritime for the year ended 31 December 2017 wasaudited by Shanghai Lixin Jiacheng Dongshen Certified Public Accountants Co., Ltd.

iv The statutory financial statements of Benteng Brunei for the years ended 31 December 2016 and 2017were audited by Messrs BDO Chartered Accountants. Benteng Brunei is controlled through contractualarrangements as described in Note 1.2, as the Brunei regulation restricts foreign ownership ofcompanies that provide construction business, which include activities and services operated byBenteng Brunei.

v The statutory financial statements of Benteng Indonesia for the years ended 31 December 2016 and2017 were audited by KAP Yuwono H Registered Public Accountants. Benteng Indonesia is controlledthrough contractual arrangements as shown in Note 1.2, as the Indonesia regulation restricts foreignownership of companies that provide construction business, which include activities and servicesoperated by Benteng Indonesia.

1.3 Basis of presentation

Immediately prior to the Reorganisation, the [REDACTED] Business has been conducted through theOperating Companies. Pursuant to the Reorganisation, the [REDACTED] Business is transferred to and held by theCompany. The Company and the newly incorporated companies have not been involved in any other business priorto the Reorganisation and do not meet the definition of a business. The Reorganisation is merely a reorganisation ofthe [REDACTED] Business with no change in management of such business and the Controlling Shareholders of the[REDACTED] Business remain the same. Accordingly, the Group resulting from the Reorganisation is regarded asa continuation of the [REDACTED] Business conducted through the Company, with the assets and liabilities of theGroup recognised and measured at the carrying amounts of the [REDACTED] Business for all periods presented.


– I-13 –


The Historical Financial Information of the Included Business of Third Harbor Construction for the TrackRecord Period was included in the following manner:

(i) Transactions and balances of Third Harbor Construction specifically identified as relating to the IncludedBusiness were combined in the Historical Financial Information, while those specifically identified asrelating to the Excluded Business were not included in the financial information;

(ii) Cash and cash equivalents which are general in nature and not specifically identifiable as being part ofany business under Third Harbor Construction were not allocated to the Historical Financial Informationof the Group and remain in the Excluded Business of Third Harbor Construction according to legal titleof entities since the bank account will be retained by Third Harbor Construction after the businesstransfer and segregation. As the balance of cash and cash equivalent of Third Harbor Construction areall allocated to Excluded Business, the cash and cash equivalents of Included Business of Third HarborConstruction are presented as “Amounts due from shareholders” in the Historical Financial Informationon 31 December 2015, 2016 and 2017 and 30 April 2018. The net increase/decrease of amount due fromshareholders were included in the “Cash flows from investing activities” in the combined statements ofcash flows. As at the completion date of Reorganisation, such “Amounts due from shareholders” will beaccounted for as a deemed distribution to the shareholders;

(iii) Bank borrowings which is not contractually and specifically identifiable as being part of any businessunder Third Harbor Construction since the financing is obtained for funding Excluded Business andhence such bank borrowings will not be assumed by the Included Business and were not allocated to theHistorical Financial Information of the Group and remain in the Excluded Business of Third HarborConstruction according to legal title of entities;

(iv) Finance cost related to Bank borrowings which were not specifically identified as being part of IncludedBusiness under Third Habour Construction were not allocated to the Historical Financial Information ofthe Group and remain in the Excluded Business of Third Harbor Construction;

(v) Current and deferred income taxes on profit attributable to the Included Business were calculated usinglocal tax rate during the Track Record Period in accordance with Group’s accounting policies; and

(vi) Inter-company transactions, balances and unrealised gains/losses on transactions between thecompanies now comprising the Group are eliminated on combination.

(vii) By the completion date of the Reorganisation, assets and liabilities of Included Business which will nottransfer to the Group mainly include amounts due from shareholders, deferred tax assets and restrictedcash, will be accounted for as a deemed distribution to the shareholders.

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of the Historical Financial Information which are inaccordance with the Hong Kong Financial Reporting Standards (“HKFRS”) issued by the HKICPA are set out below.These policies have been consistently applied throughout the Track Record Period, unless otherwise stated.

2.1 Basis of preparation

The Historical Financial Information has been prepared in accordance with HKFRSs under the historical costconvention, except for financial assets at fair value through profit or loss, which are carried at fair value.

The preparation of the Historical Financial Information in conformity with HKFRS requires the use of certaincritical accounting estimates. It also requires management to exercise its judgement in the process of applying theGroup’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas whereassumptions and estimates are significant to the Historical Financial Information are disclosed in Note 4.

HKFRS 9 ‘Financial instruments’ and HKFRS 15 ‘Revenue from contracts with customers’ are effective forannual periods beginning on or after 1 January 2018 and earlier application is permitted. The Group has appliedHKFRS 9 and HKFRS 15 consistently throughout the Track Record Period.


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New standards and interpretations not yet adopted by the Group

Up to the date of issuance of this accountant’s report, the HKICPA has issued the following newstandards, amendments and interpretation which are relevant but not yet effective for the Track Record Periodand have not been early adopted by the Group:

Effective foraccounting yearbeginning on orafter Note

HKFRS 16 Leases 1 January 2019 iHK (IFRIC) 23 Uncertainty of Income Tax Treatment 1 January 2019Amendment to HKFRS 9 Prepayment Features with Negative

Compensation1 January 2019

Amendment to HKFRS 19 Plan Amendment, Curtailment orSettlement

1 January 2019

Amendment to HKFRS 28 Long-term Interests in Associates andJoint Ventures

1 January 2019

Annual improvements 2015-2017 cycle 1 January 2019Conceptual Framework for

financial report 20181 January 2020

HKFRS 17 Insurance Contracts 1 January 2021Amendment to HKFRS 10 and

HKAS 28Sale or Contribution of Assets

between an Investor and itsAssociate or Joint Venture

To be determined

The Group has already commenced an assessment of the impact of these new or revised standards andamendments, certain of which are relevant to the Group’s operation. According to the preliminary assessmentmade by the directors, no significant impact on the financial performance and positions of the Group isexpected when they become effective.

(i) HKFRS 16

Nature of change

HKFRS 16 was issued in January 2016. It will result in almost all leases being recognised on thebalance sheet, as the distinction between operating and finance leases is removed. Under the newstandard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised.The only exceptions are short-term and low-value leases.The accounting for lessors will not significantlychange.

Impact

The new standard will therefore result in an increase in assets and financial liabilities in thecombined statements of financial position. As for the financial performance impact in the statements ofcomprehensive income, the expense related to operating lease will decrease, while depreciation andamortisation and the interest expense will increase.

The standard will affect primarily the accounting for Group’s operating leases. The Group hasdisclosed its non-cancellable operating lease commitments in Note 28(b). The total commitments underoperating leases as at 30 April 2018 was RMB14,148,000, while most of them was less than 1 year. Asa result, the Group does not expect significant impact on adoption of HKFRS 16.

Management will continue to make more detailed assessments of the impact in the future. Basedon the preliminary assessment result, the Group does not expect a material impact to the financialstatements during the Track Record Period on the adoption of new HKFRS 16.

Date of adoption by Group

Mandatory for financial years commencing on or after 1 January 2019. At this stage, the Groupdoes not intend to adopt the standard before its effective date. The Group intends to apply the simplifiedtransition approach and will not restate comparative amounts for the year prior to first adoption.


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2.2 Subsidiaries

(a) Business combination under common control

The Historical Financial Information incorporates the financial statement items of the combining entitiesor businesses in which the common control combination occurs as if they had been combined from the datewhen the combing entities or businesses first came under the control of the controlling parties.

The net assets of the combining entities or businesses are combined using the existing book values fromthe controlling party’s perspective. No amount is recognised in consideration for goodwill or excess ofacquirer’s interest in the net fair value of acquiree’s identifiable assets, liabilities and contingent liabilities overcost at the time of common control combination, to the extent of the continuation of the controlling party’sinterest.

The combined statements of comprehensive income includes the results of the combining entities orbusinesses from the earliest date presented or since the date when the combining entities or businesses firstcame under common control, where there is shorter period, regardless of the date of the common controlcombination. The Historical Financial Information includes the entities that were managed by management ofthe [REDACTED] Business during the years presented. These activities were combined with all intra-groupbalances and transactions eliminated with the Group.

(b) Consolidation

A subsidiary is an entity (including a structured entity) over which the Group has control. The Groupcontrols an entity when the Group is exposed to, or has rights to, variable returns from its involvement with theentity and has the ability to affect those returns through its power over the entity. Subsidiaries are consolidatedfrom the date on which control is transferred to the Group. They are deconsolidated from the date that controlceases.

Except for the Reorganisation, the Group applies the acquisition method to account for businesscombinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assetstransferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by theGroup. The consideration transferred includes the fair value of any asset or liability resulting from a contingentconsideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in abusiness combination are measured initially at their fair values at the acquisition date.

The Group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisitionbasis. Non-controlling interests in the acquiree that are present ownership interests and entitle their holders toa proportionate share of the entity’s net assets in the event of liquidation are measured at either fair value orthe present ownership interests’ proportionate share in the recognised amounts of the acquiree’s identifiablenet assets. All other components of non-controlling interests are measured at their acquisition date fair value,unless another measurement basis is required by HKFRSs. Acquisition-related costs are expensed asincurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’spreviously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains orlosses arising from such re-measurement are recognised in the combined statements of comprehensiveincome.

Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisitiondate. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset orliability is recognised in accordance with HKAS 39 either in profit or loss or as a change to other comprehensiveincome. Contingent consideration that is classified as equity is not remeasured, and its subsequent settlementis accounted for within equity.

The excess of the consideration transferred, the amount of any non-controlling interest in the acquireeand the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of theidentifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controllinginterest recognised and previously held interest measured is less than the fair value of the net assets of thesubsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the combinedstatements of comprehensive income.


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Intra-group transactions, balances and unrealised gains on transactions between group companies areeliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries havebeen adjusted to conform with the Group’s accounting policies.

Transactions with non-controlling interests that do not result in a loss of control are accounted for asequity transactions – that is, as transactions with the owners of the subsidiary in their capacity as owners. Thedifference between fair value of any consideration paid and the relevant share acquired of the carrying amountof net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interestsare also recorded in equity.

Gains or losses on disposals to non-controlling interests are also recorded in equity. When the Groupceases to have control, any retained interest in the entity is re-measured to its fair value at the date whencontrol is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initialcarrying amount for the purposes of subsequently accounting for the retained interest as an associate, jointventure or financial asset. In addition, any amounts previously recognised in other comprehensive income inrespect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities.This may mean that amounts previously recognised in other comprehensive income are reclassified to profitor loss.

2.3 Associates

Associates are all entities over which the Group has significant influence but not control or joint control. Thisis generally the case where the Group holds between 20% and 50% of the voting rights. Investments in associatesare accounted for using the equity method of accounting, after initially being recognised at cost.

Under the equity method of accounting, the investments are initially recognised at cost and adjusted thereafterto recognise the Group’s share of the post-acquisition profits or losses of the investee in the combined statementsof comprehensive income, and the Group’s share of movements in other comprehensive income of the investee inother comprehensive income. Dividends received or receivable from associates are recognised as a reduction in thecarrying amount of the investment.

When the Group’s share of losses in an equity-accounted investment equals or exceeds its interest in theentity, including any other unsecured long-term receivables, the Group does not recognise further losses, unless ithas incurred obligations or made payments on behalf of the other entity.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent of theGroup’s interest in these entities. Unrealised losses are also eliminated unless the transaction provides evidence ofan impairment of the asset transferred. Accounting policies of equity accounted investees have been changed wherenecessary to ensure consistency with the policies adopted by the Group.

The carrying amount of equity-accounted investments is tested for impairment in accordance with the policydescribed in Note 2.9.

2.4 Separate financial statements

Investments in subsidiaries are accounted for at cost less impairment. Cost includes direct attributable costsof investment. The results of subsidiaries are accounted for by the Company on the basis of dividend received andreceivable.

Impairment testing of the investments in subsidiaries is required upon receiving a dividend from theseinvestments if the dividend exceeds the total comprehensive income of the subsidiary in the period the dividend isdeclared or if the carrying amount of the investment in the separate financial statements exceeds the carryingamount in the consolidated financial statements of the investee’s net assets including goodwill.

2.5 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chiefoperating decision maker.

The management of the Company assesses the financial performance and position of the Group, and makesstrategic decisions. The management which is the chief operating decision maker, consists of the chief executiveofficer, the chief financial officer and the manager for corporate planning.


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2.6 Foreign currency translation

(a) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using thecurrency of the primary economic environment in which the entity operates (the “functional currency”). Thecombined financial statements are presented in RMB, which is the functional currency of the PRC subsidiariesin the Group and the Company.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at thedates of the transactions. Foreign exchange gains and losses resulting from the settlement of suchtransactions and from the translation of monetary assets and liabilities denominated in foreign currencies atyear end exchange rates are generally recognised in the combined statements of comprehensive income.

Foreign exchange gains and losses are presented in the statements of comprehensive income within“Other gains/(losses) – net”.

(c) Group companies

The results and financial position of foreign operations (none of which has the currency of ahyperinflationary economy) that have a functional currency different from the presentation currency aretranslated into the presentation currency as follows:

• assets and liabilities for each financial position presented are translated at the closing rate at thedate of that financial position,

• income and expenses for each statement of comprehensive income are translated at averageexchange rates (unless this is not a reasonable approximation of the cumulative effect of the ratesprevailing on the transaction dates, in which case income and expenses are translated at the datesof the transactions), and

• all resulting exchange differences are recognised in other comprehensive income.

On consolidation, exchange differences arising from the translation of any net investment in foreignentities, are recognised in other comprehensive income. When a foreign operation is sold, the associatedexchange differences are reclassified to profit or loss, as part of the gain or loss on sale.

2.7 Property, plant and equipment

All property, plant and equipment are stated at historical cost less depreciation. Historical cost includesexpenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, asappropriate, only when it is probable that future economic benefits associated with the item will flow to the Group andthe cost of the item can be measured reliably. The carrying amount of any component accounted for as a separateasset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during thereporting period in which they incurred.

Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts, net of theirresidual values of 5% over their estimated useful lives as follows:

• Industrial machinery and equipment 5-25 years• Office supplies and electronic equipment 3-5 years• Transport equipment 3-5 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of eachreporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carryingamount is greater than its estimated recoverable amount (Note 2.9).


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Gains and losses on disposals are determined by comparing [REDACTED] with carrying amount. These areincluded in the combined statements of comprehensive income. When revalued assets are sold, it is group policy totransfer any amounts included in other reserves in respect of those assets to retained earnings.

2.8 Intangible assets

(a) Licences

Separately acquired licences are shown at historical cost. Licences have a finite useful life and aresubsequently carried at cost less accumulated amortisation and impairment losses. Amortisation is calculatedusing the straight-line method to allocate the cost of licences over their estimated useful lives. The licence ofthe Group contains four registered patent licence. The legal term of the registered patent rights is 10 yearswhich the Group consider as the justification to have useful life of 10 years.

(b) Computer software

Acquired computer software is capitalised on the basis of the cost incurred to acquire and bring to usethe specific software. These costs are amortised over the estimated useful life of 5 years.

2.9 Impairment of non-financial assets

Assets that are subject to amortisation are tested for impairment whenever events or changes incircumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for theamount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higherof an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets aregrouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).Non-financial assets that suffered an impairment are reviewed for possible reversal of the impairment at eachreporting period.

2.10 Financial assets

(a) Classification

The Group classifies its financial assets in the following categories:

• those to be measured subsequently at fair value through profit or loss (“FVPL”), and

• those to be measured at amortised cost.

The classification depends on the entity’s business model for managing the financial assets and thecontractual terms of the cash flow.

(b) Recognition and derecognition

Regular way purchases and sales of financial assets are recognised on trade-date, the date on which theGroup commits to purchase or sell the asset. Financial assets are derecognised when the rights to receivecash flows from the financial assets have expired or have been transferred and the Group has transferredsubstantially all the risks and rewards of ownership.

(c) Measurement

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financialasset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition ofthe financial asset. Transaction costs of financial assets carried at fair value through profit or loss areexpensed in profit or loss.

(i) Debt instruments

Subsequent measurement of debt instruments depends on the Group’s business model formanaging the asset and the cash flow characteristics of the asset. There are three measurementcategories into which the Group classifies its debt instruments:


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Amortised cost: Assets that are held for collection of contractual cash flows where those cashflows represent solely payments of principal and interest are measured at amortised cost. Interestincome from these financial assets is included in finance income using the effective interest rate method.Any gain or loss arising on derecognition is recognised directly in the combined statements ofcomprehensive income and presented in “Other gains/(losses) – net”, together with foreign exchangegains and losses. Impairment losses are presented as separate line item in the statement of thecombined statements of comprehensive income.

FVOCI: Assets that are held for collection of contractual cash flows and for selling the financialassets, where the assets’ cash flows represent solely payments of principal and interest, are measuredat FVOCI. Movements in the carrying amount are taken through OCI, except for the recognition ofimpairment gains or loss, interest revenue and foreign exchange gains and losses which are recognisedin profit or loss. When the financial asset is derecognised, the cumulative gain or loss previouslyrecognised in OCI is reclassified from equity to profit or loss and recognised in “Other gains/(losses) –net”. Interest income from these financial assets is included in finance income using the effective interestrate method. Foreign exchange gains and losses are presented in “Other gains/(losses) – net” andimpairment expenses are presented as separate line item in the combined statements of comprehensiveincome.

FVPL: Assets that do not meet the criteria for amortised cost or FVOCI are measured at FVPL. Again or loss on a debt investment that is subsequently measured at FVPL is recognised in the combinedstatements of comprehensive income and presented net within “Other gains/(losses) – net” in the periodin which it arises.

(ii) Equity instruments

The Group subsequently measures all equity investments at fair value. Where the Group’smanagement has elected to present fair value gains and losses on equity investments in OCI, there isno subsequent reclassification of fair value gains and losses to profit or loss following the derecognitionof the investment. Dividends from such investments continue to be recognised in profit or loss as otherincome when the Group’s right to receive payments is established.

Changes in the fair value of financial assets at FVPL are recognised in “Other gains/(losses) – net”in the combined statement of comprehensive income as applicable. Impairment losses (and reversal ofimpairment losses) on equity investments measured at FVOCI are not reported separately from otherchanges in fair value.

Details on how the fair value of financial instruments is determined are disclosed in Note 3.1(b).

2.11 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the financial position where the Groupcurrently has a legally enforceable right to offset the recognised amounts, and there is an intention to settle on a netbasis or realise the asset and settle the liability simultaneously.

2.12 Impairment of financial assets

The Group assesses on a forward looking basis the expected credit losses associated with its debt instrumentscarried at amortised cost. The impairment methodology applied depends on whether there has been a significantincrease in credit risk. Note 3 details how the Group determines whether there has been a significant increase incredit risk.

Expected credit losses are a probability-weighted estimation of credit losses (i.e. the present value of all cashshortfalls) over the expected life of the financial assets.

The Group has the following types of assets that are subject to HKFRS 9’s new expected credit loss model:

• trade and retention receivables for providing construction services

• contract assets relating to construction contracts


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• cash and cash equivalents

• restricted cash

• amounts due from shareholders

• other receivables

While cash and cash equivalents, restricted cash, amounts due from shareholders and other receivables arealso subject to the impairment requirements of HKFRS 9, the identified impairment loss was immaterial.

For trade receivables and contract assets with no significant financing component, the Group applies thesimplified approach permitted by HKFRS 9, which requires expected lifetime losses to be recognised from initialrecognition of the assets. The provision matrix is determined based on historical observed default rates over theexpected life of the trade receivables and contract assets with similar credit risk characteristics and is adjusted forforward-looking estimates. At every reporting date the historical observed default rates are updated and changes inthe forward-looking estimates are analysed.

Impairment on other receivables, amounts due from shareholders and bank deposits are measured as either12-month expected credit losses or lifetime expected credit losses, depending on whether there has been asignificant increase in credit risk since initial recognition. If a significant increase in credit risk of a receivable hasoccurred since initial recognition, then impairment is measured as lifetime expected credit losses.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be relatedobjectively to an event occurring after the impairment was recognised, the reversal of the previously recognisedimpairment loss is recognised in the combined statements of comprehensive income.

2.13 Inventories

Inventories including raw materials are stated at the lower of cost and net realisable value. Costs of purchasedinventory are determined after deducting rebates and discounts. Net realisable value is the estimated selling pricein the ordinary course of business less the estimated costs of completion and the estimated costs necessary to makethe sale.

2.14 Trade receivables

Trade receivables are amounts due from customers for services performed in the ordinary course of business.If collection of trade and other receivables is expected in one year or less (or in the normal operating cycle of thebusiness if longer), they are classified as current assets. If not, they are presented as non-current assets.

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using theeffective interest method, less allowance for impairment. See Note 2.10 for further information about the Group’saccounting for trade receivables and Note 2.12 for a description of the Group’s impairment policies.

2.15 Cash and cash equivalents

For the purpose of presentation in the combined statements of cash flows, cash and cash equivalents includescash on hand, cash at bank, other short-term, highly liquid investments with original maturities of three months orless that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changesin value.

2.16 Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,net of tax, from the [REDACTED].


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2.17 Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of financialyear which are unpaid. Trade and other payables are presented as current liabilities unless payment is not due within12 months after the reporting period. They are recognised initially at their fair value and subsequently measured atamortised cost using the effective interest method.

Long-term payables represented amounts due to suppliers for certain construction whose contractual paymentperiods are over one year. The Group determine the payment periods according to payment schedule in thecontracts with suppliers, and the long-term payable is measured at amortised cost using the effective interestmethod, which is used to calculate the discount amounts. Management reassesses the payment period at eachbalance sheet date.

2.18 Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings aresubsequently measured at amortised cost. Any difference between the [REDACTED] (net of transaction costs) andthe redemption amount is recognised in the combined statements of comprehensive income over the period of theborrowings using the effective interest method. Fees paid on the establishment of loan facilities are recognised astransaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In thiscase, the fee is deferred until the draw down occurs. To the extent there is no evidence that it is probable that someor all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised overthe period of the facility to which it relates.

Borrowings are removed from the financial position when the obligation specified in the contract is discharged,cancelled or expired. The difference between the carrying amount of a financial liability that has been extinguishedor transferred to another party and the consideration paid, including any non-cash assets transferred or liabilitiesassumed, is recognised in the combined statements of comprehensive income as other income or finance costs.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlementof the liability for at least 12 months after the reporting period.

2.19 Borrowing costs

General and specific borrowing costs that are directly attributable to the acquisition, construction or productionof a qualifying asset are capitalised during the period of time that is required to complete and prepare the asset forits intended use or sale. Qualifying assets are assets that necessarily take a substantial period of time to get readyfor their intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure onqualifying assets is deducted from the borrowing costs eligible for capitalisation.

Other borrowing costs are expensed in the period in which they are incurred.

2.20 Current and deferred income tax

The income tax expense or credit for the period is the tax payable on the current period’s taxable income basedon the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilitiesattributable to temporary differences and to unused tax losses.

(a) Current income tax

The current income tax charge is calculated on the basis of the tax laws enacted or substantivelyenacted at the end of the reporting period in the countries where the Company’s subsidiaries and associatesoperate and generate taxable income. Management periodically evaluates positions taken in tax returns withrespect to situations in which applicable tax regulation is subject to interpretation. It establishes provisionswhere appropriate on the basis of amounts expected to be paid to the tax authorities.


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(b) Deferred income tax

Deferred income tax is provided in full, using the liability method, on temporary differences arisingbetween the tax bases of assets and liabilities and their carrying amounts in the combined financialstatements. However, deferred tax liabilities are not recognised if they arise from the initial recognition ofgoodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liabilityin a transaction other than a business combination that at the time of the transaction affects neither accountingnor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enactedor substantially enacted by the end of the reporting period and are expected to apply when the related deferredincome tax asset is realised or the deferred income tax liability is settled.

Deferred tax assets are recognised only if it is probable that future taxable amounts will be available toutilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carryingamount and tax bases of investments in foreign operations where the Company is able to control the timing ofthe reversal of the temporary differences and it is probable that the differences will not reverse in theforeseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current taxassets and liabilities and when the deferred tax balances relate to the same taxation authority. Current taxassets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends eitherto settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax is recognised in the combined statements of comprehensive income, except tothe extent that it relates to items recognised in other comprehensive income or directly in equity. In this case,the tax is also recognised in other comprehensive income or directly in equity, respectively.

2.21 Employee benefits

(a) Short-term obligations

Liabilities for wages and salaries, including non-monetary benefits and accumulating sick leave that areexpected to be settled wholly within 12 months after the end of the period in which the employees render therelated service are recognised in respect of employees’ services up to the end of the reporting period and aremeasured at the amounts expected to be paid when the liabilities are settled. The liabilities are presented ascurrent employee benefit obligations in the financial position.

(b) Post-employment obligations

The Group operates post-employment schemes via defined contribution pension plans. For definedcontribution plans, the Group pays contributions to publicly or privately administered pension insurance planson a mandatory, contractual or voluntary basis. The Group has no further payment obligations once thecontributions have been paid. The contributions are recognised as employee benefit expense when they aredue.

2.22 Provisions

Provisions for legal claims are recognised when the Group has a present legal or constructive obligation as aresult of past events, it is probable that an outflow of resources will be required to settle the obligation and the amountcan be reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement isdetermined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of anoutflow with respect to any one item included in the same class of obligations may be small.

Warranty provision is provided to customers in conjunction with the construction services. The warrantyobligation arises through the contract signed between the Group and customers, which lasts from one to two yearsafter completion of construction. The Group’s retention money are collected after the warranty period. During trackrecord period, the warranty cost was rare and immaterial, therefore provision for the warranty obligation was notrecognised.


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Provisions are measured at the present value of management’s best estimate of the expenditure required tosettle the present obligation at the end of the reporting period. The discount rate used to determine the present valueis a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to theliability. The increase in the provision due to the passage of time is recognised as interest expense.

2.23 Revenue recognition

Revenue are recognised when or as the control of the goods or services is transferred to the customer.Depending on the terms of the contract and the laws that apply to the contract, control of the goods and services maybe transferred over time or at a point in time.

When control of goods or services is transferred over time, the progress towards complete satisfaction ofperformance obligation is measured based on one of the following methods that best depicts the Group’sperformance in satisfying the performance obligation:

(a) direct measurements of the value of individual services transferred by the Group to the customer, suchas units produced or delivered, contract milestones, or surveys of work performed; or

(b) the Group’s efforts or inputs to the satisfaction of the performance obligation.

A contract asset is the Group’s right to consideration in exchange for goods or services that the Group hastransferred to a customer, and it should be presented separately. Incremental costs incurred to obtain a contract, ifrecoverable, are capitalised and presented as contract assets and subsequently amortised when the related revenueis recognised. A contract asset becomes a receivable when receipt of the consideration is conditional only on thepassage of time.

Contract assets are assessed for impairment under the same approach adopted for impairment assessmentof financial assets carried at amortised cost.

A contract liability is the Group’s obligation to render the services to a customer for which the Group hasreceived consideration from the customer.

The following is a description of accounting policy for the revenue streams of the Group.

The Group obtain revenue by providing port, waterway and marine engineering business, including theservices of infrastructure construction of ports and waterway engineering services.

The progress towards complete satisfaction of performance obligation is measured in output method based ondirect measurements of the value of units delivered or surveys of work performed. The payment terms differed fordifferent customers due to the variety of projects. Most of the payment is payable according to the stage ofconstruction with credit term of 30 to 60 days, while 20% to 30% of payments will be payable upon the completionof the construction such portion of payment is recognised as contract assets before the completion of the projectsand transfer to trade receivables when the Group has the right to bill the customers which is usually upon completionof construction; 5% to 10% of the contract price are recognised as retention money receivable, which would be paidafter the warranty period expires. The payments are commensurate with the Group’s performance and the contractsrequire certain amounts to be retained until completion of construction or expiry of warranty period which areintended for protection against non-performance. The Group does not intend to give a financing to customers and theGroup make efforts to collect the receivables and timely monitor the credit risk.

The Group do not have any variable consideration such as discounts, refunds, rebates, credits, penalties,performances bonuses or royalties. Also, the contract modification rarely occurs, and the contract price finallyconfirmed by the customer upon completion of project does not vary significantly from the original price. Tradereceivables and contract assets expected to be recovered in one year or less are classified as current assets. If not,they are presented as non-current assets.

There is no material contract fulfilment cost or cost of obtaining contracts of the Group.

Cost of sales incurred comprise direct materials, the costs of subcontracting, direct labour, depreciation, andother expenses. Costs are recognised when incurred during the completion of the contract activity. The costs ofsubcontracting occupied the most in the cost of sales.


– I-24 –


The Group records contract liability for non-refundable advance payment from customer before rendering ofservices since there is still performance obligation to complete. The contract liabilities are recognised as revenueover the period during which the relevant services are rendered to customers.

2.24 Interest income

Interest income is recognised using the effective interest method. When a receivable is impaired, the Groupreduces the carrying amount to its recoverable amount, being the estimated future cash flow discounted at theoriginal effective interest rate of the instrument, and continues unwinding the discount as interest income. Interestincome on impaired loans is recognised using the original effective interest rate.

2.25 Operating leases

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group aslessee are classified as operating leases. Payments made under operating leases (net of any incentives receivedfrom the lessor) are charged to the combined statements of comprehensive income on a straight-line basis over theperiod of the lease.

2.26 Contingent Liabilities

A contingent liability is a possible obligation that arises from past events and whose existence will only beconfirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the controlof the Group. It can also be a present obligation arising from past events that is not recognised because it is notprobable that outflow of economic resources will be required or the amount of obligation cannot be measuredreliably.

A contingent liability is not recognised but is disclosed in the notes to the Financial Information. When a changein the probability of an outflow occurs so that outflow is probable, they will then be recognised as a provision.

2.27 Dividend distribution

Dividend distribution to the Company’s shareholder is recognised as a liability in the Group’s and theCompany’s financial statements in the period in which the dividends are approved by the Company’s directors orshareholders, wherever appropriate.

3 FINANCIAL RISK MANAGEMENT

3.1 Financial risk factors

The Group’s activities expose it to a variety of financial risks: market risk (including currency risk), credit riskand liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financialmarkets and seeks to minimise potential adverse effects on the Group’s financial performance. The Group doesn’tuse any derivative financial instruments to hedge certain risk exposures during the Track Record Period.

(a) Market risk

(i) Foreign exchange risk

The Group operates internationally and is exposed to foreign exchange risk arising from variouscurrency exposures. The Group entities collect most of the revenue and incur most of the expendituresin respect of their functional currencies. Foreign exchange risk arises from various currency exposuresprimarily through proceeds received from customers and payments to the suppliers that aredenominated in a currency other than the Group’s entities’ functional currency. The currencies givingrise to this risk are primarily US dollar (“USD”), as certain purchase and sales of the Group isdenominated in USD. The management of the Group considers that the Group’s exposure to foreigncurrency exchange risk is not significant due to the most of the functional currency of the entities inGroup is the same as the transaction currency.

The Group currently does not have a foreign currency hedging policy. However, the managementof the Group monitors foreign exchange exposure and will consider hedging significant foreign currencyexposure should the need arise.


– I-25 –


(b) Credit risk

Credit risk arises from restricted cash, cash and cash equivalents, trade and other receivables andcontract assets. The carrying amounts of each class of these financial assets represent the Group’s maximumexposure to credit risk in relation to the corresponding class of financial assets.

To manage the risk with respect to cash and cash equivalents and restricted cash, the Group placedthem in banks with highly reputation.

The Group considers the probability of default upon initial recognition of asset and whether there hasbeen a significant increase in credit risk on an ongoing basis throughout each reporting period. To assesswhether there is a significant increase in credit risk, the Group compares the risk of default occurring on theasset as at the reporting date with the risk of default as at the date of initial recognition. It considers availablereasonable and supportive forwarding-looking information. Especially the following indicators areincorporated:

• actual or expected significant adverse changes in business, financial or economic conditions thatare expected to cause a significant change to the customers’ ability to meet its obligations

• actual or expected significant changes in the operating results of customers

• significant increases in credit risk on other financial instruments of customers

• significant changes in the expected performance and behaviour of customers, including changesin the payment status of customers in the Group and changes in the operating results of thecustomers.

(i) Trade receivables, retention receivables and contract assets

The Group applies the simplified approach to providing for expected credit losses prescribed byHKFRS 9, which permits the use of the lifetime expected loss provision for all trade and retentionreceivables and contract assets.

The Group’s trade and retention receivables at the end of each reporting period were due fromcustomers. For trade and retention receivables, the Group performs ongoing credit evaluations of itsdebtors’ financial condition and does not require collateral from the debtors on the outstanding balances.The customers of certain long ageing trade and retention receivables are related to some large projectswith duration over one year. The ageing of past due over three years relating to trade and retentionreceivables of such projects as at 31 December 2015, 2016, 2017 and 30 April 2018 wasRMB20,274,000, RMB186,293,000, RMB18,720,000 and RMB21,492,000. Since these customers havestrong financial ability with low credit risk, and historically and subsequently, there was rare actualdefault for these receivables. As at 31 December 2015, 2016 and 2017 and 30 April 2018, the Group hasassessed that the expected loss rate for such trade and retention receivables was immaterial. No lossallowance provision for trade and retention receivables of approximately RMB336,898,000,RMB293,657,000, RMB179,914,000 and RMB203,921,000 relating to such customers was recognisedas at 31 December 2015, 2016, 2017 and 30 April 2018.

Contract assets are relate to unbilled work in progress which have substantially the same riskcharacteristics as the trade receivables for the same types of contract. The Group has thereforeconcluded that the expected loss rates for trade receivables are a reasonable approximation of the lossrates for the contract assets. Since the contract assets are still in performing and the payment is not due.The expected loss rate of contract assets is assessed to be 0.28% which is the same as that of tradereceivables past due up to one year. As at 31 December 2015, 2016 and 2017 and 30 April 2018, the lossallowance for provision for contract assets is approximately RMB959,000, RMB1,101,000, andRMB660,000 and RMB720,000.

Individually impaired trade and retention receivables are relate to customers who are experiencingunexpected economic difficulties. The Group expects that the entire amounts of the receivables will havedifficulty to be recovered and has recognised impairment losses. For the year ended 31 December 2015,2016, 2017 and four months ended 2018, the trade and retention receivables of approximatelyRMB34,877,000 and RMB34,878,000, RMB41,155,000 and RMB39,626,000 respectively have beenfully provided for loss allowance.


– I-26 –


To measure the expected credit losses of the remaining trade and retention receivables, tradereceivables and retention receivables have been considered on credit risk characteristics and the dayspast due. The loss allowance provision as at 31 December 2015, 2016, 2017 and 30 April 2018 isdetermined as follows, the expected credit losses below also incorporated forward looking information.

Up to1 year

1 to2 years

2 to3 years

Over3 years Total


Trade receivablesAt 30 April 2018Expected loss rate 0.28% 0.89% 6.17% 38.40%Gross carrying amount (excluding

receivables assessedindividually) 264,154 74,526 27,655 4,103 370,438

Loss allowance provision 740 663 1,706 1,576 4,685

Individually impaired receivables – – 2,101 19,624 21,725

Total loss allowance provision 740 663 3,807 21,200 26,410

Up to1 year

1 to2 years

2 to3 years

Over3 years Total


Retention receivablesAt 30 April 2018Expected loss rate 1.46% 1.68% 3.34% 8.43%Gross carrying amount (excluding


Loss allowance provision 1,106 488 948 1,171 3,713

Individually impaired retentionreceivables – – – 17,901 17,901

Total loss allowance provision 1,106 488 948 19,072 21,614

Up to1 year

1 to2 years

2 to3 years

Over3 years Total


Trade receivablesAt 31 December 2017Expected loss rate 0.28% 0.89% 6.17% 38.40%Gross carrying amount (excluding

receivables assessedindividually) 533,064 49,482 11,566 768 594,880

Loss allowance provision 1,493 440 714 295 2,942

Individually impaired receivables – – 2,103 19,622 21,725

Total loss allowance provision 1,493 440 2,817 19,917 24,667


– I-27 –


Up to1 year

1 to2 years

2 to3 years

Over3 years Total


Retention receivablesAt 31 December 2017Expected loss rate 1.46% 1.68% 3.34% 8.43%Gross carrying amount (excluding


Loss allowance provision 1,352 665 732 456 3,205


Total loss allowance provision 1,352 665 732 19,886 22,635

Up to1 year

1 to2 years

2 to3 years

Over3 years Total




Loss allowance provision 598 496 827 1,491 3,412

Individually impaired receivables – 2,103 1,861 16,810 20,774

Total loss allowance provision 598 2,599 2,688 18,301 24,186

Up to1 year

1 to2 years

2 to3 years

Over3 years Total


Retention receivablesAt 31 December 2016Expected loss rate 1.46% 1.68% 3.34% 8.43%Gross carrying amount (excluding


Loss allowance provision 762 591 345 1,160 2,858


Total loss allowance provision 762 591 345 15,264 16,962


– I-28 –


Up to1 year

1 to2 years

2 to3 years

Over3 years Total




Loss allowance provision 589 328 919 816 2,652

Individually impaired receivables 2,103 1,861 10,365 6,444 20,773

Total loss allowance provision 2,692 2,189 11,284 7,260 23,425

Up to1 year

1 to2 years

2 to3 years

Over3 years Total


Retention receivables (excluding receivables assessed individually)At 31 December 2015Expected loss rate 1.46% 1.68% 3.34% 8.43%Gross carrying amount 42,565 14,257 20,551 24,138 101,511Loss allowance provision 621 240 686 2,035 3,582

Individually impaired retentionreceivables – – 3,454 10,650 14,104

Total loss allowance provision 621 240 4,140 12,685 17,686

The loss allowance provision for trade receivables, retention receivables and contract assets asat 31 December 2015, 2016 and 2017 and 30 April 2018 reconciles to the opening loss allowance for thatprovision as follows:

Tradereceivables

Retentionreceivables

Contractassets Total

RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2015 20,395 14,818 909 36,122

Provision for loss allowancerecognised in combinedstatements of comprehensiveincome 3,030 2,868 50 5,948

At 31 December 2015 23,425 17,686 959 42,070

Provision for/(reversal of) lossallowance recognised incombined statements ofcomprehensive income 761 (724) 142 179

At 31 December 2016 24,186 16,962 1,101 42,249


– I-29 –


Tradereceivables

Retentionreceivables

Contractassets Total

RMB’000 RMB’000 RMB’000 RMB’000

Provision for/(reversal of) lossallowance recognised incombined statements ofcomprehensive income 481 5,673 (441) 5,713

At 31 December 2017 24,667 22,635 660 47,962

Provision for/(reversal of) lossallowance recognised incombined statements ofcomprehensive income 1,743 (1,021) 60 782

At 30 April 2018 26,410 21,614 720 48,744

The Group adopt general approach for expected credit losses of other receivables and consider ithas not significant increased in credit risk from initial recognition. Thus, still in stage one and onlyconsider 12-month expected credit losses.

For other receivables, management makes periodic collective assessments as well as individualassessment on the recoverability of other receivables based on historical settlement records and pastexperience. The Group considered counter parties having a low risk of default and a strong capacity ofto meet contractual cash flow as performing. The directors of the Company believe that except ofwrite-off of RMB1,446,000 in year ended 31 December 2016 there is no material credit risk in theGroup’s outstanding balance of other receivable.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and cash equivalents, theavailability of funding through an adequate amount of committed credit facilities and the ability to close outmarket positions. The Group’s objective is to maintain adequate committed credit lines to ensure sufficient andflexible funding is available to the Group.

The table below analyses the Group’s non-derivative financial liabilities into relevant maturity groupingsbased on the remaining period at the balance sheet date to the contractual maturity date. The amountsdisclosed in the table are the contractual undiscounted cash flows.

Less than1 year

Between 1and 2 years

Between 2and 5 years Total

RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2015Trade and other payables 985,362 50,736 57,367 1,093,465

At 31 December 2016Trade and other payables 1,038,557 91,089 22,425 1,152,071

At 31 December 2017Trade and other payables 900,698 167,361 14,202 1,082,261

At 30 April 2018Trade and other payables 824,625 20,147 12,157 856,929

For the financial guarantees provided, please refer to Note 29 (c).


– I-30 –


3.2 Capital management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a goingconcern in order to provide returns to shareholders and benefits for other stakeholders, and to maintain an optimalcapital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid toshareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as total debt divided bytotal equity. As there is no borrowings as during the Track Record Period, the capital risk was relatively low.

3.3 Fair value estimation

(a) Fair value hierarchy

This section explains the judgements and estimates made in determining the fair values of the financialinstruments that are recognised and measured at fair value in the financial statements. To provide anindication about the reliability of the inputs used in determining fair value, the Group has classified its financialinstruments into the three levels prescribed under the accounting standards. An explanation of each levelfollows underneath the table.

Recurring fair valuemeasurements Note Level 1 Level 2 Level 3 Total

RMB’000 RMB’000 RMB’000 RMB’000

At 31 December 2017Financial assets at fair value

through profit or loss (Note 20) – – 20,000 20,000

At 30 April 2018Financial assets at fair value

through profit or loss (Note 20) – – 9,000 9,000

The Group purchased a bank wealth management product with guaranteed principal and floating returnof investment in December 2017. The fair value of the product does not have observable market data. Theannualised expected return rate at 31 December 2017 and 30 April 2018 was 2.55%, and the fair valuechanges is immaterial due to the short period and low expected return rate. Accordingly, the fair valueapproximate to the cost. The Group can redeem the assets any day and the [REDACTED] will return on thesame day.

There were no transfers between levels 1, 2, and 3 for recurring fair value measurements during theyear.

Level 1: The fair value of financial instruments traded in active markets (such as publicly tradedderivatives, and trading and available-for-sale securities) is based on quoted market prices at the end of thereporting period. The quoted market price used for financial assets held by the Group is the current bid price.These instruments are included in level 1.

Level 2: The fair value of financial instruments that are not traded in an active market (for example,over-the-counter derivatives) is determined using valuation techniques which maximise the use of observablemarket data and rely as little as possible on entity-specific estimates. If all significant inputs required to fairvalue an instrument are observable, the instrument is included in level 2.

Level 3: If one or more of the significant inputs is not based on observable market data, the instrumentis included in level 3. This is the case for unlisted equity securities.


– I-31 –


(b) Valuation techniques used to determine fair values

Specific valuation techniques used to value financial instruments include:

• the use of quoted market prices or dealer quotes for similar instruments

• the fair value of the remaining financial instruments is determined using discounted cash flowanalysis.

The Group has a team of personnel who performs valuation on these level 3 instruments for financialreporting purposes. On an annual basis, the team adopts various valuation techniques to determine the fairvalue of the Group’s level 3 instrument.

The level 3 instrument of the Group is investments in a wealth management product. As the instrumentis not traded in an active market, its fair value has been determined using various applicable valuationtechniques, including discounted cash flows approach and comparable transaction approach, etc. Majorassumptions used in the valuation include historical financial results, assumptions about future growth rates,recent market transactions and other exposure.

The Group used discounted cash flows approach to value the fair value of the instrument as at yearend/period ended, which is approximately to the cost. The fair value changes of the instrument is immaterialdue to the short period and low expected return rate. Accordingly, the sensitivity to changes in unobservableinputs is not material.

4 CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS

Estimates and judgments are continually evaluated and are based on historical experience and other factors,including expectations of future events that are believed to be reasonable under the circumstances.

The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will,by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk ofcausing a material adjustment to the carrying amounts of assets and liabilities within the next financial year areaddressed below.

(a) Useful lives of property, plant and equipment

The Group’s management determines the estimated useful lives and related depreciation charges for itsproperty, plant and equipment. This estimate is based on the historical experience of the actual useful lives ofproperty, plant and equipment of similar nature and functions. It could change significantly as a result of technicalinnovations and competitor actions in response to severe industry cycles. Management reassesses the useful liveson a regular basis. Management will increase the depreciation charge where useful lives are shorter than previouslyestimated lives, or it will write-off or write-down technically obsolete or non-strategic assets that have beenabandoned or sold.

(b) Income taxes and deferred tax assets/liabilities

The Group is subject to income taxes in several jurisdictions. Judgement is required in determining theprovision for income taxes. Where the final tax outcome of these matters is different from the amounts that wereinitially recorded, such differences will impact the current income tax and deferred income tax provisions in theperiods in which such determination are made.

Deferred tax assets relating to certain temporary differences and tax losses are recognised as managementconsiders it is probable that future taxable profits will be available against which the temporary differences or taxlosses can be utilised. Where the expectation is different from the original estimate, such differences will impact therecognition of deferred tax assets and taxation in the periods in which such estimate is changed.


– I-32 –


(c) Provision for impairment of trade and other receivables and contract assets

The Group’s management determines the provision for impairment of trade receivables, retention receivablesand contract assets on a forward looking basis and the expected lifetime losses are recognised from initialrecognition of the assets. The provision matrix is determined based on the Group’s historical observed default ratesover the expected life of the trade receivables with similar credit risk characteristics and is adjusted for forward-looking estimates. Other receivables is considered 12-month expected credit losses. Contract assets will not betransferred to trade receivables and retention receivables unless the construction work are competed, which is thetime when the Group has unconditional right to receive to conditions. The Group assesses that the contract assetshave substantially the same risk characteristics as the trade receivables for the same types of contracts. In makingthe judgement, management considers available reasonable and supportive forwarding-looking information such asactual or expected significant changes in the operating results of customers, actual or expected significant adversechanges in business and customers’ financial position. At every reporting date the historical observed default ratesare updated and changes in the forward-looking estimates are analysed by the Group’s management.

(d) Revenue recognition

The Group has primary responsibility to fulfilment of the contract, quality and warranty of the overall work andhas discretion in selecting subcontractors and discretion of the pricing for subcontractor. Thus, the Group is actingas the principal and recognises revenue on a gross basis. The determination of the progress of the constructionservice involves judgements. The Group recognise revenue based on progress confirmation from customers. Theconfirmation reflects progress towards complete satisfaction of performance obligation, which is measured based ondirect measurements of the value of units delivered or surveys of work performed. The customers will provide finalstatement when the whole project is completed and may have adjustments on accumulated confirmation accordingto the actual engineering quantity till the day of completion. Based on historical experience with similar projects, thedifference is immaterial. In addition, when determining the transaction price, the Group consider factors such aswhether there is any financing component. The Group considers whether the payment schedule is commensuratewith the Group’s performance and whether the delayed payment is for finance purpose. The Group does not considerthe arrangement with customers have significant financing component. The Group has, therefore, recognisedrevenue on progress confirmation over the period during which the services are rendered and transferred tocustomers.

(e) Long-term payables

Long-term payables represented amounts due to suppliers for certain construction whose contractual paymentperiods are over one year. The Group determine the payment periods according to payment schedule in thecontracts with suppliers, and the long-term payable is measured at amortised cost using the effective interestmethod. Management reassesses the payment period at each balance sheet date.

5 SEGMENT INFORMATION

(a) Description of segments and principal activities

The chief operating decision-maker has been identified as the chief executive officer and the manager forcorporate planning. The [REDACTED] Business’s management evaluates the Group’s performance both from aservice and geographic perspective and has identified two reportable segments of its business:

(i) Ports infrastructure; and

(ii) Waterway engineering.

The segment results represent the gross profit of the ports infrastructure and waterway engineering.

The amounts provided to the management with respect to total assets, total liabilities and capital expenditureare measured in a manner consistent with that of combined financial statements. The management reviews the totalassets, total liabilities and capital expenditure at Group level, therefore no segment information of total assets, totalliabilities and capital expenditure information was presented.

The segment information of the Group during the Track Record Period is set out as follows:

(b) Segment results and other information

Sales between segments are carried out at arm’s-length. The revenue from external parties is measured in thesame way as in the statements of comprehensive income.


– I-33 –


The segment information for the year ended 31 December 2015 is as follows:


Portsinfrastructure

Waterwayengineering Total

RMB’000 RMB’000 RMB’000

Revenue 931,387 193,267 1,124,654Cost of sales (825,554) (179,158) (1,004,712)

Segment results 105,833 14,109 119,942

Unallocated item:Selling and distribution expenses (3,496)Administrative expenses (26,148)Other gains/(losses) – net 137Finance costs – net (5,570)Share of net profit of associates 291

Profit before income tax 85,156Income tax expense (21,405)

Profit for the year 63,751

Segment items included:Depreciation and amortisation (3,942) (818) (4,760)Provision for impairment of receivables and

contract assets (5,721) (227) (5,948)



Portsinfrastructure


RMB’000 RMB’000 RMB’000

Revenue 925,471 338,314 1,263,785Cost of sales (810,693) (320,053) (1,130,746)

Segment results 114,778 18,261 133,039

Unallocated item:Selling and distribution expenses (2,431)Administrative expenses (27,113)Other gains/(losses) – net 15Finance costs – net (3,221)Share of net profit of associates 333



Segment items included:Depreciation and amortisation (4,315) (1,578) (5,893)Provision for impairment and write-off of receivables

and contract assets (1,515) (110) (1,625)


– I-34 –




Portsinfrastructure


RMB’000 RMB’000 RMB’000

Revenue 1,362,268 49,700 1,411,968Cost of sales (1,206,721) (46,110) (1,252,831)

Segment results 155,547 3,590 159,137

Unallocated item:Selling and distribution expenses (2,184)Administrative expenses (44,191)Other operating expense (437)Other income 2,401Other gains/(losses) – net 539Finance costs – net (2,152)Share of net profit of associates 173




contract assets (5,373) (340) (5,713)


– I-35 –


The segment information for the four months ended 30 April 2017 is as follows:

Four months ended 30 April 2017 (unaudited)

Portsinfrastructure


RMB’000 RMB’000 RMB’000

Revenue 217,876 – 217,876Cost of sales (189,991) – (189,991)

Segment results 27,885 – 27,885

Unallocated item:Selling and distribution expenses (872)Administrative expenses (8,778)Other operating expense –Other income –Other gains/(losses) – net (648)Finance costs – net (970)Share of net profit of associates 33


Profit for the period 12,759

Segment items included:Depreciation and amortisation (2,743) – (2,743)Provision for impairment of receivables and

contract assets (876) – (876)


– I-36 –


The segment information for the four months ended 30 April 2018 is as follows:


Portsinfrastructure


RMB’000 RMB’000 RMB’000

Revenue 264,166 4,382 268,548Cost of sales (222,111) (4,150) (226,261)

Segment results 42,055 232 42,287

Unallocated item:Selling and distribution expenses (710)Administrative expenses (12,349)Other operating expense (37)Other income 818Other gains/(losses) – net (830)Finance costs – net 780Share of net profit of associates –


Profit for the period 24,614


contract assets (630) (152) (782)


– I-37 –


(c) Revenue from external customers

Revenue from external customers by region, based on the destination of the customers:


30 April

2015 2016 2017 2017 2018


(unaudited)

Mainland ChinaPorts infrastructureRevenue 931,387 833,246 918,785 139,788 89,750Cost of sales (825,554) (716,788) (828,775) (124,387) (77,443)

105,833 116,458 90,010 15,401 12,307

Waterway engineeringRevenue 193,267 338,314 49,700 – 4,382Cost of sales (179,158) (320,053) (46,110) – (4,150)

14,109 18,261 3,590 – 232

Southeast AsiaPorts infrastructureRevenue – 92,225 443,483 78,088 174,416Cost of sales – (93,905) (377,946) (65,604) (144,668)

– (1,680) 65,537 12,484 29,748

Non-current assets, other than non-current receivables, contract assets and deferred tax assets, by territory:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Mainland China 68,816 69,282 55,756 54,832Southeast Asia – 6,776 27,233 24,538

Total 68,816 76,058 82,989 79,370


– I-38 –


The breakdown of individual customer’s revenue exceeds 10% of the Group’s total revenue for each of theyears ended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2017 and 2018 is as follows:


30 April

2015 2016 2017 2017 2018


(unaudited)

Ports infrastructureCustomer A 229,540 * * * *Customer B * * 306,764 31,641 –Customer C – * 251,590 70,550 42,172Customer D – * 216,163 37,915 –Customer E * * * * 46,608Customer F – – – – 30,192Customer G – * – – 39,119

Waterway engineeringCustomer H – 206,573 – – –

* represents that the amount of revenue from such customer is less than 10% of the total revenue for thatyear/period.

(d) Contract assets and liabilities

The Group has recognised the following revenue-related contracts assets and liabilities:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Contract assetsPorts infrastructure 303,722 315,019 234,807 256,680Waterway engineering 38,599 78,325 943 453

Less: allowance for impairment ofcontract assets (959) (1,101) (660) (720)

341,362 392,243 235,090 256,413

Contract liabilitiesPorts infrastructure 74,051 14,339 23,683 30,288Waterway engineering – – – –

74,051 14,339 23,683 30,288

The contract asset is the Group’s right to consideration in the exchange for services that the Group hastransferred to customer. The contract assets transferred to trade and retention receivables when receipt of theconsideration is conditional only on the passage of time.

The Group expects that contract assets have the same risk characteristics as trade receivables. Theimpairment of contract assets does not have significant impact on the Group. The impairment of contract assets isdisclosed in Note 3.1.


– I-39 –


The contract liabilities above are due to the non-refundable advance payment made by customers. Suchliabilities fluctuated as a result of the terms of different projects. A contract liability is the Group’s obligation to renderto services to a customer for which the Group has received consideration from the customer. A contract liability isrecognised by the Group when the customer pay consideration but before the Group renders the service to thecustomer.

Due to the completion of the construction, RMB97,385,000, RMB95,026,000 and RMB162,562,000 andRMB34,074,000 of contract assets were transferred to trade receivables, while RMB44,157,000, RMB61,277,000and RMB71,529,000 and RMB588,000 of contract assets were transferred to retention receivables in 2015, 2016and 2017 and the four months ended 30 April 2018 respectively.

(i) Revenue recognised in relation to contract liabilities

The following table shows how much of the revenue, which was included in the contract liability balanceat the beginning of the period, recognised during the Track Record Period relates to carried-forward contractliabilities.


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Ports infrastructure 6,144 74,051 14,339 –Waterway engineering 2,714 – – –

8,858 74,051 14,339 –

(ii) Unsatisfied performance obligations

The following table shows unsatisfied performance obligations as at 31 December 2015, 2016 and 2017and 30 April 2018.


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Ports infrastructure 1,093,403 507,206 1,021,701 865,245Waterway engineering 281,485 527,849 24,320 24,320

1,374,888 1,035,055 1,046,021 889,565

Management expects that 70% of the transaction price allocated to the unsatisfied contracts as at 30April 2018 will be recognised as revenue before 30 April 2019, 14% will be recognised as revenue before 30April 2020, 10% will be recognised as revenue before 30 April 2021, the remaining 6% will be recognised asrevenue before 30 April 2022.


– I-40 –


6 OTHER INCOME


30 April

2015 2016 2017 2017 2018


(unaudited)

Rental income – – 1,634 – 550Sales of raw materials – – 767 – 268

– – 2,401 – 818

7 OTHER GAINS/(LOSSES) – NET


30 April

2015 2016 2017 2017 2018


(unaudited)

Net gains on disposal ofproperty, plant and equipment – 167 332 27 –

Net foreign exchangegains/(losses) 137 (152) 380 (675) (830)

Losses on disposal ofinvestment in associates – – (173) – –

137 15 539 (648) (830)

8 EXPENSES BY NATURE

Expenses included in cost of sales, selling and distribution expenses, administrative expenses and otheroperating expense are analysed as follows:


30 April

2015 2016 2017 2017 2018


(unaudited)

Subcontracting costs 737,406 696,999 600,797 70,175 49,739Raw materials and consumables

used 223,221 395,643 585,848 99,330 149,906Wages and salaries, social welfare

and benefits, including directors’emoluments (Note 9) 31,265 29,682 38,250 13,738 12,030

Taxes and surcharges 10,441 4,911 1,644 1,040 7Provision for impairment of

receivables and contract assets(Note 3) 5,948 179 5,713 876 782

Write-off of receivables(Note 3) – 1,446 – – –Depreciation of property, plant and

equipment (Note 15) 4,652 5,753 9,478 2,696 3,209Amortisation of intangible assets

(Note 16) 108 140 140 47 54Operating lease payments 441 3,649 22,501 3,026 13,334Auditors’ remuneration 85 111 153 53 53[REDACTED] – – 4,559 – 3,449Other expenses 20,789 21,777 30,560 8,660 6,794

1,034,356 1,160,290 1,299,643 199,641 239,357


– I-41 –


9 EMPLOYEE BENEFIT EXPENSES

Employee benefit expenses are as follows:


30 April

2015 2016 2017 2017 2018


(unaudited)

Salaries, wages and bonuses 21,920 20,905 31,006 11,106 10,341Pension, housing fund, medical

insurance and other welfare benefits 9,345 8,777 7,244 2,632 1,689

Total employee benefit expenses 31,265 29,682 38,250 13,738 12,030

(a) Pension costs – defined contribution plans

The employees of the Group’s subsidiaries established in the PRC participate in defined contributionretirement benefit plans organised by the relevant provincial governments under which the Group is required to makemonthly contributions to these plans at certain percentages of the employees’ monthly salaries and wages, subjectto certain ceilings.

The Group participates in a Mandatory Provident Fund scheme (the “MPF Scheme”) in accordance with theMandatory Provident Fund Scheme Ordinance of Hong Kong. Under the rules of the MPF Scheme, the employer andits employees in Hong Kong are each required to contribute 5% of the employees’ gross earnings with a ceiling ofHK$1,500 per month.

The Group participates in an employee social security programme (the “Indonesian Social SecurityProgramme”) in Indonesia, providing compensation in the event of working accidents, death, old age, and in case ofsickness and hospitalisation. Under the Indonesian Social Security Programme, the employer is required tocontribute a fixed percentage of the employee’s salaries every month.

The Group participates in a contribution scheme in accordance with the Employee Trust Act and EmployeeTrust Rules and Regulations of Brunei (“Bruneian Contribution Scheme”). Under the rules of the BruneianContribution Scheme, for the employees who are citizens and permanent residents of Brunei Darussalam agedbelow 55 years, the employees and the employers are each required to contribute a fixed percentage of theemployee’s basic salaries every month.


– I-42 –


(b) Benefits and interests of directors

The remuneration expenses of every director recorded in the combined statements of comprehensive incomeis set out below:

Name Fees Salaries Bonus

Pension,housing fund,

medicalinsurance andother welfare

benefits Total


For the year ended 31 December 2015Executive directorsMr. Wang Shizhong(i)(iii) – – – – –Mr. Wang Xiuchun(i) – 120 119 73 312Ms. Wan Yun(i)(iii) – – – – –Ms. Olive Chen(i) – – – – –Mr. Wang Lijiang(i)(iii) – – – – –

Non-executive directorsMr. Wang Hongwei(ii) – – – – –Mr. How Sze Ming(ii) – – – – –Mr. Sun Dajian(ii) – – – – –

– 120 119 73 312



– 120 116 84 320



– 120 130 91 341


– I-43 –


Name Fees Salaries Bonus



benefits Total


For the four months ended 30 April 2017 (unaudited)Executive directorsMr. Wang Shizhong(i)(iii) – – – – –Mr. Wang Xiuchun(i) – 40 43 29 112Ms. Wan Yun(i)(iii) – – – – –Ms. Olive Chen(i) – – – – –Mr. Wang Lijiang(i)(iii) – – – – –


– 40 43 29 112

For the four months ended 30 April 2018Executive directorsMr. Wang Shizhong(i)(iii) – – – – –Mr. Wang Xiuchun(i) – 40 40 31 111Ms. Wan Yun(i)(iii) – – – – –Ms. Olive Chen(i) – – – – –Mr. Wang Lijiang(i)(iii) – – – – –


– 40 40 31 111

(i) As at 20 December 2017, Mr. Wang Shizhong was appointed as the Company’s Chairman and executivedirector.

As at 9 April 2018, Mr. Wang Xiuchun, Ms. Wan Yun and Mr. Wang Lijiang were appointed as theCompany’s executive directors.

As at 18 April 2018, Ms. Olive Chen was appointed as the Company’s executive director.

(ii) As at 19 October 2018, Mr. Wang Hongwei, Mr. How Sze Ming and Mr. Sun Dajian were appointed asthe Company’s independent non-executive directors.


– I-44 –


(iii) The emoluments of Mr. Wang Shizhong, Ms. Wan Yun and Mr. Wang Lijiang, directors in relation to theirservices rendered for the Group for the Track Record Period were borne by related parties of the Group.There emoluments were not allocated to the Group as the management of the Company considers thereis no reasonable basis of allocation. The emoluments they received from the related parties during theTrack Record Period are as follows:

Received from therelated parties Fees Salaries Bonus



benefits Total


For the year ended 31 December 2015Executive directorsMr. Wang Shizhong – 96 291 83 470Ms. Wan Yun – 96 24 46 166Mr. Wang Lijiang – 142 75 29 246

– 334 390 158 882

For the year ended 31 December 2016Executive directorsMr. Wang Shizhong – 96 390 88 574Ms. Wan Yun – 96 24 46 166Mr. Wang Lijiang – 200 – 42 242

– 392 414 176 982

For the year ended 31 December 2017Executive directorsMr. Wang Shizhong – 90 410 73 573Ms. Wan Yun – 96 104 46 246Mr. Wang Lijiang – 187 – 23 210

– 373 514 142 1,029

For the four months ended 30 April 2017 (unaudited)Executive directorsMr. Wang Shizhong – 30 130 29 189Ms. Wan Yun – 32 8 16 56Mr. Wang Lijiang – 82 – 8 90

– 144 138 53 335

For the four months ended 30 April 2018Executive directorsMr. Wang Shizhong – 30 129 30 189Ms. Wan Yun – 32 34 15 81Mr. Wang Lijiang – 82 – 10 92

– 144 163 55 362

The remuneration shown above represents aggregate emoluments paid to or receivable by directors in respectof their services in connection with the management of the affairs of the Company or its subsidiaries undertaking.


– I-45 –


None of the directors of the Company received or were paid any remuneration in respect of accepting office,and waived or has agreed to waive any emolument during the Track Record Period.

(c) Directors’ retirement benefits

There were no retirement benefits paid to any director during the Track Record Period.

(d) Directors’ termination benefits

There were no termination benefits paid to any director during the Track Record Period.

(e) Consideration provided to or receivable by third parties for making available directors’ services

No consideration was provided to or receivable by third parties for making available directors’ services duringthe Track Record Period.

(f) Information about loans, quasi-loans and other dealings in favour of directors

Except as disclosed elsewhere in this report, no loans, quasi-loans and other dealings were entered intobetween the Group and the directors in favour of the directors, during the Track Record Period.

(g) Directors’ material interests in transactions, arrangements or contracts

Except as disclosed elsewhere in this report, no significant transactions, arrangements and contracts inrelation to the Group’s business to which the Company was a party and in which a director of the Company had amaterial interest, whether directly or indirectly, subsisted at the end of the year or at any time during the year, duringthe year ended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2017 and 2018.

(h) Five highest paid individuals

The five individuals whose emoluments were the highest in the Group include one director whose emolumentsare reflected in the analysis presented in Note 9(b) during the years end 31 December 2015, 2016, 2017 and the fourmonths ended 30 April 2017 and 2018. The emoluments paid to the remaining four individuals for the year ended 31December 2015, 2016, 2017 and the four months ended 30 April 2017 and 2018 are as follow:


30 April

2015 2016 2017 2017 2018


(unaudited)

Salaries, wages and bonuses 801 1,052 1,100 280 241Pension, housing fund, medical

insurance and other welfarebenefits 298 300 404 100 109

Total employee benefit expense 1,099 1,352 1,504 380 350

The number of highest paid non-director individuals, whose remuneration for the Track Record Period fellwithin the following bands:


30 April

2015 2016 2017 2017 2018

(unaudited)

Emolument bandsHKD100,000 to HKD1,000,000 4 4 4 4 4

During the Track Record Period, no emoluments have been paid to the highest paid individuals as aninducement to join or upon joining the Group or as compensation for loss of office.


– I-46 –


10 FINANCE COSTS AND INCOME


30 April

2015 2016 2017 2017 2018


(unaudited)

Finance costs:– Unwinding of discount of

long-term payables(i) (5,724) (3,271) (2,543) (1,034) (131)

Finance income:– Interest income derived from

cash and bank and otherfinancial instruments 154 50 391 64 911

Finance (costs)/income – net (5,570) (3,221) (2,152) (970) 780

(i) The financial cost of unwinding of discount of long-term payable was measured at amortised cost.

11 INCOME TAX EXPENSE

The amounts of tax expense charged to the combined statements of comprehensive income represent:


30 April

2015 2016 2017 2017 2018


(unaudited)

Current income tax 23,527 27,759 27,211 3,136 5,727Deferred income tax (Note 26) (2,122) (2,100) (1,199) 755 (382)

Income tax expenses – net 21,405 25,659 26,012 3,891 5,345

Taxes on profits assessable elsewhere have been calculated at the rates of tax prevailing in the jurisdictionsin which the entity operates.

(i) Cayman Islands profit tax

The Company was incorporated in the Cayman Islands as an exempted company with limited liability under theCompanies Law (Law 3 of 1961, as consolidated and revised) of the Cayman Islands and is exempted from paymentof the Cayman Islands income tax.

(ii) BVI profits tax

HuaZi Rosely, Maritime Vansun and Engineering Prosper, which are the Company’s subsidiaries andincorporated in the BVI are exempted from BVI income tax, as they are incorporated under the International BusinessCompanies Act of the BVI.

(iii) Hong Kong profits tax

One of the Company’s subsidiaries incorporated in Hong Kong, is subject to Hong Kong profits tax. Theapplicable Hong Kong profits tax rate is 16.5% for the Track Record Period.


– I-47 –


(iv) PRC corporate income tax (“CIT”)

The Company’s subsidiaries incorporated in PRC are subject to PRC income tax. The applicable CIT tax rateis 25% for the Track Record Period.

(v) Brunei income tax

One of the Company’s subsidiaries incorporated in Brunei is subject to Brunei income tax. The applicableBrunei income tax rate is 18.5% for the Track Record Period.

(vi) Indonesia income tax

Indonesia income tax is charged through a system of withholding taxes. Companies are required to withholdfinal income tax for construction work performance and interest income from bank deposits. For the Track RecordPeriod, income tax has been provided at the rate of 4% on the construction revenue before 31 October 2017 and 3%for the two months ended 31 December 2017 and four months ended 30 April 2018, and income tax of 20% has beenprovided on the interest income from bank deposits.

The tax on the Group’s profit before tax differs from the theoretical amount that would arise using the statutorytax rate to profits of the combined entities as follows:


30 April

2015 2016 2017 2017 2018


(unaudited)

Profit before income tax 85,156 100,622 113,286 16,650 29,959

Tax calculated at applicable tax rates 21,290 25,589 25,529 3,851 5,488Income not subject to profits tax (73) (83) (43) (8) (157)Expenses not deductible for tax

purpose 188 153 526 48 14

Tax charge 21,405 25,659 26,012 3,891 5,345

During the Track Record Period, no dividend withholding tax for PRC companies and Benteng Indonesia hasbeen provided as the directors have confirmed that the Group does not expect those subsidiaries to distribute theretained earnings as at 31 December 2015, 2016 and 2017 and 30 April 2018 in the foreseeable future.

12 BASIC AND DILUTED EARNINGS PER SHARE

No earnings per share information is presented as its inclusion, for the purpose of this report, is not consideredmeaningful due to the Group reorganisation and the preparation of the results for each of the years ended 31December 2015, 2016 and 2017 and the four months ended 30 April 2017 and four months ended 30 April 2018 ona combined basis as disclosed in Note 1.3 above.

13 DIVIDENDS

No dividend was approved nor paid out by the Company and the Group during the Track Record Period.


– I-48 –


14a SUBSIDIARIES

The investment in subsidiaries are set out in Note 1.2 above.

The Company

As at 30 April2018

RMB’000

Investment, at cost 5Deemed capital contribution to subsidiaries 65,859

65,864

Third Harbor Construction transferred its entire beneficial interest in Benteng Brunei and Benteng Indonesiato Maritime Vansun and Engineering Prosper which are the direct subsidiaries of the Company respectively. Theamount represents the consideration of such acquisition in respect of the shares issued by the Company to HuaZiHolding, Ye Wang Zhou Holding, HZ&BT Development Holding and Worldlink with reference to the net assets valueof Benteng Brunei and Benteng Indonesia amounted to RMB47,533,000 and RMB18,331,000, respectively.

On 19 April 2018, the Company issued and allotted 286,611, 94,768, 130,426 and 50,618 shares, credited asfully paid, to HuaZi Holding, Ye Wang Zhou Holding, HZ&BT Development Holding and Worldlink to satisfy theconsideration of entire beneficial interest in Benteng Brunei transferred from Third Harbor Construction to MaritimeVansun. The nominal value of the shares issued amounted to approximately HKD5,600 (equivalent to approximatelyRMB4,500) which is accounted as share capital. Meanwhile, the remaining value of the net assets of Benteng Bruneiamounted to RMB47,529,000 has been accounted as other reserve in the financial position of the Company.

On 26 April 2018, the Company issued and allotted 48,113, 15,909, 21,894 and 8,497 shares, credited as fullypaid, to HuaZi Holding, Ye Wang Zhou Holding, HZ&BT Development Holding and Worldlink to satisfy theconsideration of entire beneficial interest in Benteng Indonesia transferred from Third Harbor Construction toEngineering Prosper. The nominal value of the shares issued amounted to approximately HKD900 (equivalent toapproximately RMB700) which is accounted as share capital. Meanwhile, the remaining value of the net assets ofBenteng Indonesia amounted to RMB18,330,000 has been accounted as other reserve in the financial position of theCompany.

14b INVESTMENTS IN ASSOCIATES

The Group has interests in two private companies at 31 December 2015, 31 December 2016 and 30 April 2017,which are individually immaterial associates in the opinion of the directors, and are accounted for using the equitymethod. There is no quoted market price available for their shares nor contingent liabilities relating to the Group’sinterest in the associate.


30 April

2015 2016 2017 2017 2018


(unaudited)

Aggregate carrying amount ofindividually immaterialassociates 7,404 7,737 – 7,770 –

Aggregate amounts of theGroup’s share of:Profit for the year/period 291 333 173 33 –

Total comprehensive income 291 333 173 33 –


– I-49 –


Shanghai Hongqi Foundation Construction Co., Ltd. (formerly known as “Shanghai Third Harbor BentengFoundation Construction Co., Ltd.”) was an entity with significant influence by Third Harbor Construction through itsholding of 26% equity interests. The cost of investment is approximately RMB6,676,000 as at 31 December 2016. Itwas disposed in November 2017 as described in Note 29.

Shanghai Chouyu (formerly known as “Shanghai Third Harbor Benteng Water Engineering Co., Ltd.”) was anentity with significant influence by Third Harbor Construction through its holding of 20% equity interests. The cost ofinvestment is approximately RMB1,061,000 as at 31 December 2016. In It was disposed in November 2017 asdescribed in Note 29.

15 PROPERTY, PLANT AND EQUIPMENT

Office suppliesand electronic

equipment

Industrialmachinery and

equipmentTransport

equipment Total

RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2015Cost 5,467 106,178 12,204 123,849Accumulated depreciation (4,819) (42,869) (11,374) (59,062)

Net book amount 648 63,309 830 64,787

Year ended 31 December 2015Opening net book amount 648 63,309 830 64,787Additions 120 – 534 654Depreciation charge (195) (4,311) (146) (4,652)

Closing net book amount 573 58,998 1,218 60,789

At 31 December 2015Cost 5,587 106,178 12,738 124,503Accumulated depreciation (5,014) (47,180) (11,520) (63,714)

Net book amount 573 58,998 1,218 60,789

Year ended 31 December 2016Opening net book amount 573 58,998 1,218 60,789Additions 116 9,187 3,122 12,425Disposals – – (75) (75)Depreciation charge (190) (4,786) (777) (5,753)Currency translation differences – (13) (1) (14)



Net book amount 499 63,386 3,487 67,372


– I-50 –


Office suppliesand electronic

equipment

Industrialmachinery and

equipmentTransport

equipment Total

RMB’000 RMB’000 RMB’000 RMB’000

Year ended 31 December 2017Opening net book amount 499 63,386 3,487 67,372Additions 161 24,267 1,768 26,196Disposals (177) (661) (477) (1,315)Depreciation charge (146) (8,349) (983) (9,478)Currency translation differences (3) (131) 5 (129)



Net book amount 334 78,512 3,800 82,646

Four months ended 30 April 2018Opening net book amount 334 78,512 3,800 82,646Additions 44 – – 44Depreciation charge (31) (3,129) (49) (3,209)Currency translation differences (5) (592) (6) (603)


At 30 April 2018Cost 2,280 128,942 6,887 138,109Accumulated depreciation (1,938) (54,151) (3,142) (59,231)

Net book amount 342 74,791 3,745 78,878

During the Track Record Period, the amounts of depreciation expense charged to cost of sales andadministrative expenses are as follows:


30 April

2015 2016 2017 2017 2018


(unaudited)

Cost of sales 4,399 4,893 8,326 2,381 3,177Administrative expenses 253 860 1,152 315 32

4,652 5,753 9,478 2,696 3,209

As at 31 December 2015 and 2016, vessels of the Group with a total net book value of RMB57,058,000 andRMB53,482,000 were pledged to secure certain short-term bank borrowings amounting to RMBnil andRMB29,995,000 of Third Harbor Construction which were not included in [REDACTED] Business.

As at 31 December 2017 and 30 April 2018, all pledge arrangements were released.


– I-51 –


16 INTANGIBLE ASSETS

LicencesComputer

software Total

RMB’000 RMB’000 RMB’000

At 1 January 2015Cost 100 – 100Accumulated amortisation (19) – (19)

Net book amount 81 – 81

Year ended 31 December 2015Opening net book amount 81 – 81Additions – 650 650Amortisation charge (10) (98) (108)

Closing net book amount 71 552 623

At 31 December 2015Cost 100 650 750Accumulated amortisation (29) (98) (127)

Net book amount 71 552 623

Year ended 31 December 2016Opening net book amount 71 552 623Amortisation charge (10) (130) (140)




Year ended 31 December 2017Opening net book amount 61 422 483Amortisation charge (10) (130) (140)





– I-52 –


LicencesComputer

software Total

RMB’000 RMB’000 RMB’000

Four months ended 30 April 2018Opening net book amount 51 292 343Additions – 203 203Amortisation charge (4) (50) (54)


At 30 April 2018Cost 100 853 953Accumulated amortisation (53) (408) (461)


Amortisation charges of intangible assets have been charged to “Administrative expenses” in the combinedstatements of comprehensive income.

17 FINANCIAL INSTRUMENTS BY CATEGORY

The carrying amounts of each of the categories of financial instruments are as follows:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Assets at amortised cost as perfinancial position

– Trade and other receivables excludingprepayments and prepaid taxation 751,081 746,936 980,295 754,292

– Cash and cash equivalents – 6,193 122,264 269,672– Restricted cash 20,545 24,661 8,024 5,141– Amounts due from shareholders 321,808 344,942 294,484 296,681Financial assets at fair value through

profit or loss – – 20,000 9,000

Total 1,093,434 1,122,732 1,425,067 1,334,786


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Liabilities at amortised cost as perfinancial position

– Trade and other payables excludingnon-financial liabilities 1,089,463 1,149,399 1,080,426 856,526

Total 1,089,463 1,149,399 1,080,426 856,526


– I-53 –


18 INVENTORIES


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Raw materials 413 2,677 5,730 10,394

During the years ended 31 December 2015, 2016 and 2017 and the four months ended 30 April 2018, the costof inventories recognised as an expense and included in “Cost of sales” was RMB223,221,000,RMB395,643,000,RMB585,848,000 and RMB149,906,000 respectively. There were no provision for or reversal of write-down ofinventories during the Track Record Period.

19 TRADE AND OTHER RECEIVABLES


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade receivables(i) 621,787 599,131 780,382 596,007Less: allowance for impairment of trade

receivables(iv) (23,425) (24,186) (24,667) (26,410)

Trade receivables – net(i) 598,362 574,945 755,715 569,597

Retention receivables(ii) 115,617 127,354 195,113 165,049Less: allowance for impairment of

retention receivables(iv) (17,686) (16,962) (22,635) (21,614)

Retention receivables – net(ii) 97,931 110,392 172,478 143,435

Bills receivables(i) 7,430 10,850 1,710 6,722Other receivables(iii) 47,358 50,749 50,392 34,538Prepayments 11,484 5,889 2,609 10,634Prepaid taxation 28,011 11,633 8,357 9,900

790,576 764,458 991,261 774,826

Less:non-current portionRetention receivables(ii) (13,477) (1,978) (13,848) (2,410)Prepayments – (466) – –

(13,477) (2,444) (13,848) (2,410)

Current portion 777,099 762,014 977,413 772,416

(i) The Group’s revenues are generated through infrastructure construction of ports and waterwayengineering and settlements are made in accordance with the terms specified in the contracts governingthe relevant transactions. The Group seeks to maintain strict control over its outstanding receivables tominimise credit risk. Overdue balances are reviewed regularly by senior management. In view of theaforementioned and the fact that the Group’s trade receivables relate to a large number of diversified


– I-54 –


customers, certain customers may have large trade receivables balances, there may be concentrationof credit risk. The customers of certain long ageing trade and retention receivables are related to somelarge projects and the customers have strong financial capacity with low credit risk. The Group does nothold any collateral or other credit enhancements over its trade receivable balances.

The carrying amounts of trade and retention receivables approximate their fair value as at the respectivebalance sheet dates during the Track Record Period.

As at 31 December 2015, 2016 and 2017 and 30 April 2018, the ageing analysis of the trade and billsreceivables based on confirmation date of customers is as follows:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Up to 3 months 103,411 131,770 455,957 124,1544 to 6 months 38,096 20,518 77,384 221,9647 to 12 months 136,992 106,305 74,549 105,6271 to 2 years 67,797 119,607 85,940 76,0092 to 3 years 254,079 25,295 50,793 29,756Over 3 years 28,842 206,486 37,469 45,219

629,217 609,981 782,092 602,729

(ii) Retention receivables represented amounts due from customers upon completion of the freemaintenance period of the construction work, which normally lasts from one to two years, and themaintenance cost is usually immaterial during that period. In the combined statement of financialposition, retention receivables are classified as current assets if they are expected to be received in oneyear or less. If not, they are presented as non-current assets. The ageing of the retention is as follows:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within 1 year 42,566 52,183 92,625 75,7201 to 2 years 14,257 36,470 40,901 29,0752 to 3 years 24,006 10,331 35,112 28,4623 to 4 years 20,700 9,230 5,440 10,0064 to 5 years 5,840 8,326 5,820 4,432Over 5 years 8,248 10,814 15,215 17,354

115,617 127,354 195,113 165,049

The credit terms granted to customers by the Group are usually 30 to 60 days.

(iii) Other receivables mainly represented tender and performance deposits due from customers. Thesetender deposits are usually returned after the biding process, which may last approximately threemonths. Certain other receivables are represent the reimbursed expenses paid on behalf of relatedparties (Note 29 (b)). These receivables are unsecured, interest free and receivables/repayable ondemand. The carrying amount of other receivables approximate their fair value and there is no indicationof significant credit risk.

(iv) The Group applies simplified approach to provide for expected credit losses prescribed in HKFRS 9 asdisclosed in Note 3. Provision for/(reversal of) impaired receivables have been included in“Administrative expenses” in the combined statements of comprehensive income.


– I-55 –


(v) The carrying amounts of the Group’s trade receivables, bills receivables, retention receivables and otherreceivables are denominated in the following currencies:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

RMB 751,081 708,720 872,690 655,298USD – 37,910 46,972 25,149Brunei Dollar (BND) – – 58,084 59,074Indonesian Rupiah (IDR) – 306 2,549 14,771

751,081 746,936 980,295 754,292

(vi) Past due but not impaired

As at 31 December 2015, 2016 and 2017 and 30 April 2018, the amounts of trade receivables ofRMB313,593,000, RMB278,253,000, RMB140,293,000 and RMB143,698,000 were past due but not impaired.These relate to certain independent customers who have strong financial ability with low credit risk, andhistorically and subsequently, there was rare default for these trade receivables. The ageing analysis of thesetrade receivables is as follows:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Up to 3 months – – – –4 to 6 months 15,653 – – 46,0227 to 12 months 24,124 33,847 37,304 74,6261 to 2 years 29,048 48,576 49,653 1,4832 to 3 years 228,820 10,037 36,256 75Over 3 years 15,948 185,793 17,080 21,492

313,593 278,253 140,293 143,698

20 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at fair value through profit or loss are all held for trading and include the following:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Current assetsBank finance products – – 20,000 9,000

Changes in fair values of financial assets at fair value through profit or loss are not material for year ended 31December 2017 and the four months ended 30 April 2018.


– I-56 –


21 CASH AND CASH EQUIVALENTS


30 April

Group 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Cash on hand – 738 273 72Cash at bank 20,545 30,116 130,015 274,741

20,545 30,854 130,288 274,813Less: Restricted cash (Note i, ii, iii, iv) (20,545) (24,661) (8,024) (5,141)

– 6,193 122,264 269,672


30 April

The Company 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Cash on hand – – – 123,140

Cash at bank and on hand are denominated in the following currencies:


30 April

Group 2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

RMB 20,545 22,263 99,948 97,780BND – 3,568 8,978 9,873IDR – 3,889 20,812 8,217USD – 1,134 550 158,943

20,545 30,854 130,288 274,813

The restricted cash represented the following balances:

(i) As at 31 December 2015, 2016, 2017 and 30 April 2018, deposits at bank of RMB10,843,000,RMB15,259,000, RMB4,344,000 and RMB4,344,000 respectively, were pledged as security forlitigation;

(ii) As at 31 December 2015, 2016, 2017 and 30 April 2018, deposits at bank of RMB6,467,000,RMB7,002,000, RMB2,874,000 and RMB nil respectively, were pledged as security for issuance of letterof guarantee;

(iii) As at 31 December 2015, 2016, 2017 and 30 April 2018, deposits at bank of RMB nil, RMB2,400,000,RMB805,000 and RMB796,000 respectively, were pledged as security of sending expatriates;

(iv) The remaining restricted bank deposits were mainly pledged as security for issuance of bankacceptance notes.


– I-57 –


22 SHARE CAPITAL OF THE COMPANY

Number ofordinary shares

Equivalentnominal value of

ordinary share

RMB’000

Authorised:38,000,000 shares of HK$0.01 each 38,000,000 321

Issued:Issued and paid on 20 December 2017 (date of incorporation)

and balances as at 31 December 2017 910,000 8

Shares issued pursuant to the Reorganisation 1,746,836 14

Balances as at 30 April 2018 2,656,836 22

On 20 December 2017, the Company’s authorised share capital of HK$380,000 was divided into 38,000,000shares with a par value of HK$0.01 each. Upon incorporation, one share was allotted and issued, credited asfully-paid, to Harneys Fiduciary (Cayman) Limited, our Company’s initial subscriber and an Independent Third Party.On the same date, such share was subsequently transferred to HuaZi Holding and another 509,599, 168,532 and231,868 shares were allotted and issued to HuaZi Holding, Ye Wang Zhou Holding and HZ&BT DevelopmentHolding, respectively, credited as fully paid. The nominal value of the shares issued amounted to HKD9,100(equivalent to approximately RMB8,000) was accounted as the share capital of the Company.

On 10 April 2018, HuaZi Holding, Ye Wang Zhou Holding and HZ&BT Development Holding acquired further509,600, 168,532 and 231,868 shares, respectively, by way of capital injection at a total consideration ofUS$9,958,000 (equivalent to approximately RMB62,440,000) on a pro-rata basis. On 11 April 2018, the Company,HuaZi Holding, Ye Wang Zhou Holding, HZ&BT Development Holding, Mr. Wang, the Five Individual Shareholders,the 14 Individual Shareholders and Worldlink entered into the subscription agreement, pursuant to which Worldlinkagreed to subscribe for 180,000 new shares, representing 9.00% of the then total issued share capital of theCompany as enlarged by the subscription, at a total subscription price of approximately US$9,585,000 (equivalentto approximately RMB60,000,000).

The total consideration was fully paid and settled with additional contribution of RMB693,000. The nominalvalue of the shares issued amounted to HKD10,900 (equivalent to approximately RMB8,700) was accounted as theshare capital of the Company. Meanwhile, the remaining contribution amounted to RMB123,124,000 was accountedas other reserves of the Company.

On 19 April 2018, the Company issued and allotted 286,611, 94,768, 130,426 and 50,618 shares, credited asfully paid, to HuaZi Holding, Ye Wang Zhou Holding, HZ&BT Development Holding and Worldlink to satisfy theconsideration of entire beneficial interest in Benteng Brunei transferred from Third Harbor Construction to MaritimeVansun. The nominal value of the shares issued amounted to HKD5,600 (equivalent to approximately RMB4,500)which was accounted as share capital. Meanwhile, the remaining consideration amounted to RMB47,529,000 withreference to the net asset value of Benteng Brunei was accounted as other reserve in the financial position of theCompany.

On 26 April 2018, Third Harbor Construction transferred 670,000 shares, representing 67% of the total numberof issued shares of Benteng Indonesia to Engineering Prosper at a consideration with reference to the net assetvalue of Benteng Indonesia. To satisfy the consideration, the Company issued and allotted 48,113, 15,909, 21,894and 8,497 shares, credited as fully paid, to HuaZi Holding, Ye Wang Zhou Holding, HZ&BT Development Holding andWorldlink. The nominal value of the shares issued amounted to HKD900 (equivalent to approximately RMB700)which was accounted as share capital. Meanwhile, the remaining consideration amounted to RMB18,330,000 withreference to the net asset value of Benteng Indonesia was accounted as other reserve in the financial position of theCompany.


– I-58 –


23 COMBINED CAPITAL AND OTHER RESERVES

Other reserves

GroupCombined

capitalStatutory

reserveCapitalreserve

Exchangereserve Total


(Note(a)) (Note(b)) (Note1.2) (Note(c))

Balance at 31 December 2015 – – – – –

Currency translation differences – – – (118) (118)

Balance at 31 December 2016 – – – (118) (118)

Appropriation to statutoryreserves – 39 – – 39

Currency translation differences – – – (173) (173)Contribution from shareholders 120,130 – – – 120,130

Balance at 31 December 2017 120,130 39 – (291) 119,878

Currency translation differences – – – (1,444) (1,444)Contribution from shareholders 8,739 – 123,124 – 131,863

Balance at 30 April 2018 128,869 39 123,124 (1,735) 250,297

Other Reserves

The CompanyStatutory

reserveCapitalreserve

Exchangereserve Total

RMB’000 RMB’000 RMB’000 RMB’000

Balance at 31 December 2017 – – – –

Contribution from shareholders – 123,124 – 123,124Acquisition of entities by shares issued – 65,859 – 65,859

Balance at 30 April 2018 – 188,983 – 188,983

(a) The Reorganisation has not been completed as at 30 April 2018. As mentioned in Note 1.2 above, theHistorical Financial Information has been prepared as if the Group structure after the Reorganisationhad been in existence through out the years ended 31 December 2015, 2016 and 2017 and the fourmonths ended 30 April 2018. As at 30 April 2018, the combined capital mainly represent the share capitalof the Company, Shanghai Shanyu, Benteng Brunei and Benteng Indonesia amounted to HKD26,568(equivalent to approximately RMB22,000), RMB122,440,000 and BND25,000 (equivalent toapproximately RMB122,000), IDR13,162,000,000 (equivalent to approximately RMB6,290,000). As at31 December 2017, the combined capital mainly represent the share capital of the Company, ThirdHarbor Maritime and Benteng Brunei amounted to HKD9,100 (equivalent to RMB8,000),RMB120,000,000 and BND25,000 (equivalent to RMB122,000).


– I-59 –


(b) Statutory reserves comprise statutory surplus reserve of the subsidiary companies in the PRC. TheCompany’s subsidiaries incorporated in the PRC are required to make appropriations to statutoryreserves from their profit for the year after offsetting accumulated losses carried forward from prior yearsas determined under the PRC accounting regulations and before distribution to shareholders. Thepercentages to be appropriated to such statutory reserve are determined according to the relevantregulations in the PRC at rate of 10% or at the discretion of the board of directors of the PRCsubsidiaries, and further appropriation is optional when the accumulated fund is 50% or more of theregistered capital of the subsidiaries.

(c) Exchange reserve of the Group represents the difference arising from the translation of the financialstatements of companies within the Group that have a functional currency different from RMB, thepresentation currency of the financial statements of the Company and the Group.

24 RETAINED EARNINGS


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

At beginning of the year/period 268,652 332,403 407,366 487,618Profit for the year/period 63,751 74,963 87,274 24,614Appropriation to statutory reserves – – (39) –Deemed distribution to shareholders

(Note 1.2) – – (6,983) –

At end of the year/period 332,403 407,366 487,618 512,232

25 TRADE AND OTHER PAYABLES


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade payables(i) 542,714 547,022 645,118 510,776Bills payables(i) 5,935 2,499 9,219 4,385Retention payables(ii) 141,958 142,692 117,524 97,701Long-term payables(iii) 352,410 407,273 293,162 234,617Payroll and social security 7,471 6,654 4,581 3,667Other payables 46,446 49,913 15,403 9,047Other tax liabilities excluding income tax

liabilities 37,131 32,252 36,951 42,080

1,134,065 1,188,305 1,121,958 902,273

Less:non-current portionRetention payables(ii) (61,166) (57,335) (48,630) (32,133)Long-term payables(iii) (44,745) (54,478) (132,820) (162)

(105,911) (111,813) (181,450) (32,295)

Current portion 1,028,154 1,076,492 940,508 869,978


– I-60 –


(i) The Group’s trade payables are mainly denominated in the RMB.

As at 31 December 2015, 2016 and 2017 and 30 April 2018, the ageing analysis of the trade and billspayables is as follows:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within 3 months 157,159 243,888 239,998 123,4504 to 6 months 82,564 70,935 149,227 105,7627 to 12 months 121,850 54,782 145,966 156,6841 to 2 years 102,049 71,835 71,331 87,5532 to 3 years 68,247 31,445 25,860 25,715Over 3 years 16,780 76,636 21,955 15,997

548,649 549,521 654,337 515,161

(ii) Retention payables represented amounts due to suppliers upon completion of the free maintenanceperiod of the construction work, which normally lasts from one to two years. In the combined financialposition, retention payables are classified as current liabilities if they will be required to be paid in oneyear or less. If not, they are presented as non-current liabilities. The ageing of the retention payables isas follows:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within 1 year 20,815 25,047 51,323 25,0331 to 5 years 119,787 115,712 59,029 64,389Over 5 years 1,356 1,933 7,172 8,279

141,958 142,692 117,524 97,701

(iii) Long-term payables represented amounts due to suppliers for certain construction work with unbilledpayables and the expected billing periods are over one year. In the combined financial position,long-term payables are classified as current liabilities if they will be required to be paid in one year orless. If not, they are presented as non-current liabilities. The ageing of the long-term payables is asfollows:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Within 1 year 154,461 203,168 151,611 101,6901 to 5 years 164,261 194,786 133,416 124,234Over 5 years 33,688 9,319 8,135 8,693

352,410 407,273 293,162 234,617


– I-61 –


(iv) The carrying amounts of the Group’s trade payables, bills payables, retention payables, long-termpayables and other payables are denominated in the following currencies:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

RMB 1,089,463 1,097,010 978,084 766,976USD – 49,887 21,511 8,330BND – 1,766 74,304 77,802IDR – 736 6,527 3,418

1,089,463 1,149,399 1,080,426 856,526

26 DEFERRED INCOME TAX

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset currentincome tax assets against current income tax liabilities and when the deferred income tax assets and liabilities relateto income taxed levied by the same taxation authority on either the taxable entity or different taxable entities wherethere is an intention to settle the balances on a net basis. The analysis of deferred tax assets and deferred taxliabilities is as follows:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Deferred tax assets:– Deferred tax assets to be recovered

within 12 months – 1,217 – –– Deferred tax assets to be recovered

after more than 12 months – – 12,093 12,246

– 1,217 12,093 12,246Deferred tax liabilities:– Deferred tax liabilities to be recovered

within 12 months (987) (1,137) (1,241) (1,271)– Deferred tax liabilities to be recovered

after more than 12 months (2,014) (954) (10,519) (10,260)

(3,001) (2,091) (11,760) (11,531)

Deferred tax (liabilities)/assets – net (3,001) (874) 333 715


– I-62 –


The movement of the deferred income tax account is as follows:


Four monthsended

30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

At beginning of year/period (5,123) (3,001) (874) 333Charged to combined statements of

comprehensive income (Note 11) 2,122 2,100 1,199 382Currency translation differences – 27 8 –

At end of year/period (3,001) (874) 333 715

(a) Deferred tax assets

The movement in deferred tax assets and liabilities during the Track Record Period, without takingconsideration the offsetting of balances within the same tax jurisdiction, is as follows:

Allowancefor

impairmentof trade and

retentionreceivables

and contractassets Tax losses Others Total

RMB’000 RMB’000 RMB’000 RMB’000

At 1 January 2015 9,031 – 218 9,249Credited/(charged) to the combined

statements of comprehensive income 1,487 – (8) 1,479

At 31 December 2015 10,518 – 210 10,728

Credited to the combined statements ofcomprehensive income 31 1,190 13 1,234

Currency translation differences – 27 – 27

At 31 December 2016 10,549 1,217 223 11,989

Credited/(charged) to the combinedstatements of comprehensive income 1,277 (1,225) 44 96

Currency translation differences – 8 – 8

At 31 December 2017 11,826 – 267 12,093

Credited to the combined statements ofcomprehensive income 195 – – 195

At 30 April 2018 12,021 – 267 12,288

Deferred tax assets are recognised for tax losses carry-forwards to the extent that the realisation of the relatedtax benefit through future taxable profits is probable.


– I-63 –


(b) Deferred tax liabilities

Property,plant and

equipmentLong-term

payables Total

RMB’000 RMB’000 RMB’000

At 1 January 2015 (12,546) (1,826) (14,372)(Charged)/credited to the combined

statements of comprehensive income (183) 826 643

At 31 December 2015 (12,729) (1,000) (13,729)

Credited to the combined statements ofcomprehensive income 534 332 866

At 31 December 2016 (12,195) (668) (12,863)

Credited to the combined statements ofcomprehensive income 894 209 1,103

At 31 December 2017 (11,301) (459) (11,760)

Credited/(charged) to the combinedstatements of comprehensive income 219 (32) 187

At 30 April 2018 (11,082) (491) (11,573)


– I-64 –


27 CASH GENERATED FROM/(USED IN) OPERATIONS

(a) Reconciliation of profit before income tax to cash generated from/(used in) operations

Year ended 31 DecemberFour months

ended 30 April

2015 2016 2017 2017 2018


(unaudited)

Profit before income tax 85,156 100,622 113,286 16,650 29,959Adjustments for:– Depreciation of property, plant

and equipment (Note 15) 4,652 5,753 9,478 2,696 3,209– Amortisation of intangible

assets (Note 16) 108 140 140 47 54– Net gains on disposal of

property, plant and equipment(Note 7) – (167) (332) (27) –

– Losses on disposal ofinvestment in associates(Note 7) – – 173 – –

– Provision for impairment ofreceivables and contractassets (Note 3) 5,948 179 5,713 876 782

– Write-off of receivables(Note 3) – 1,446 – – –

– Finance costs/(income) – net(Note 10) 5,570 3,221 2,152 970 (780)

– Net foreign exchange(gains)/losses (Note 7) (137) 152 (380) 675 830

– Share of profit frominvestments accounted forusing equity method(Note 14b) (291) (333) (173) (33) –

– (Increase)/decrease inrestricted cash (6,259) (4,116) 16,637 17,662 2,883

– Decrease/(increase) ininventories 531 (2,264) (3,053) (20,129) (4,664)

– (Increase)/decrease incontract assets (3,082) (51,023) 157,594 70,876 (21,383)

– Increase/(decrease) incontract liabilities 65,190 (59,712) 9,344 47,385 6,605

– Decrease/(increase) in tradeand other receivables 51,725 16,453 (229,351) 7,424 215,712

– (Decrease)/Increase in tradeand other payables (65,243) 49,691 (60,331) (157,549) (221,635)

Cash generated from/(usedin)operations 143,868 60,042 20,897 (12,477) 11,572


– I-65 –


(b) Reconciliation of liabilities arising from financing activities

Other assets

Liabilitiesfrom financing

activities

Cash and cashequivalents

Amounts due toa related party Total

RMB’000 RMB’000 RMB’000

Net debt as at 1 January 2015 – (4,871) (4,871)Cash flows – 3,416 3,416

Net debt as at 31 December 2015 – (1,455) (1,455)

Cash flows 6,033 827 6,860Foreign exchange adjustments 160 – 160

Net debt as at 31 December 2016 6,193 (628) 5,565

Cash flows 116,317 628 116,945Foreign exchange adjustments (246) – (246)

Net debt as at 31 December 2017 122,264 – 122,264

Cash flows 147,259 – 147,259Foreign exchange adjustments 149 – 149

Net debt as at 30 April 2018 269,672 – 269,672

28 COMMITMENTS

(a) Capital commitments

As at 31 December 2015, 2016 and 2017 and 30 April 2018, the Group and the Company did not have anysignificant capital commitments.

(b) Commitments under operating leases

As at 31 December 2015, 2016 and 2017 and 30 April 2018, the Group had future aggregate minimum leasepayments under non-cancellable operating leases as follows:


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

No later than 1 year – 958 20,834 13,611Later than 1 year and no later than

2 years – – 403 403Later than 2 years and less than 3 years – – 203 134

– 958 21,440 14,148


– I-66 –


29 RELATED PARTY TRANSACTIONS

Related parties are those parties that have the ability to control, jointly control or exert significant influenceover the other party in holding power over the investee; exposure, or rights, to variable returns from its involvementwith the investee; and the ability to use its power over the investee to affect the amount of the investor’s returns.Parties are also considered to be related if they are subject to common control or joint control. Related parties maybe individuals or other entities.

The following is a summary of the significant transactions carried out between the Group and its related partiesin the ordinary course of business during the Track Record Period, and balances arising from related partytransactions as at the respective balance sheet dates.

Name and relationship with related parties are set out below:

Related party Relationship Note

Third Harbor Construction Controlled by the same ultimate controllingshareholder

Shanghai Watts Gallop Holding Group Co., Ltd.(“Watts Gallop”)

Immediate holding company of Third HarborConstruction

Mr. Wang Shizhong Executive director of the CompanyMr. Wang Xiuchun Executive director of the CompanyMr. Tang Liang Senior management of the GroupMr. Wang Wei Brother of Mr. Wang XiuchunMr. Wang Shixiang Brother of Mr. Wang ShizhongMr. Wang Shixiao Brother of Mr. Wang ShizhongMr. Wang Likai Son of Mr. Wang ShizhongShanghai Hongqi Foundation Construction Co.,

Ltd. (“Shanghai Hongqi”)Associate of Third Harbor Construction before

November 2017(i)

Shanghai Chouyu Construction EngineeringCo., Ltd.(“Shanghai Chouyu”)

Associate of Third Harbor Construction beforeNovember 2017

(ii)

Zhejiang Zhoushan Benteng ConstructionMaterial Co., Ltd. (“Zhoushan Benteng”)

Subsidiary of Watts Gallop (iii)

Tonglu Benteng Construction Material ProductsCo., Ltd.

Associate of Watts Gallop before October 2015 (iv)

Shanghai Tianzhou Ocean Engineering Co.,Ltd.

Beneficially owned by Mr. Wang Wei beforeNovember 2017

(v)

Jiangsu DOTA International Trade Co., Ltd. Subsidiary of Third Harbor Construction beforeJuly 2017

(vi)

Jiangsu Shenyu Port Engineering Co., Ltd. Subsidiary of Watts GallopZhejiang Benteng Transportation Engineering

Co., Ltd.Associate of Watts Gallop

Zhejiang Benteng Municipal GardenConstruction Engineering Co., Ltd.

Controlled by the same ultimate controllingshareholders

Shanghai Longbo Industrial Investment Co.,Ltd.

Beneficially owned by Mr. Wang Shizhong

Zhejiang Sanmei Real Estate DevelopmentCo., Ltd.

Beneficially owned by Mr. Wang Shizhong

Yuxin Holding Co., Ltd. Beneficially owned by Mr. Wang LikaiHuaZi Holding Controlled by Mr. Wang Shizhong

(i) Shanghai Hongqi (formerly known as “Shanghai Third Harbor Benteng Foundation Construction Co.,Ltd.”) was an entity with significant influence by Mr. Lai Gaocai, Mr. Wang Shixiao and Third HarborConstruction through their holding of 60.5%, 13.5% and 26% equity interests in Shanghai Hongqirespectively. Mr. Wang Shixiao and Third Harbor Construction disposed their equity interests inShanghai Hongqi in November 2017. Accordingly, the related party transactions for the year ended 31December 2017 represented only eleven months’ transactions, the transactions with Shanghai Hongqiis not disclosed for the four months ended 30 April 2018 and the balances with Shanghai Hongqi is notdisclosed as at 31 December 2017 and 30 April 2018.


– I-67 –


(ii) Shanghai Chouyu (formerly known as “Shanghai Third Harbor Benteng Water Engineering Co., Ltd.”)was an entity with significant influence by Mr. Wang Wei and Third Harbor Construction through theirholding of 80% and 20% equity interests in Shanghai Chouyu respectively. Mr. Wang Wei and ThirdHarbor Construction disposed their equity interests in Shanghai Chouyu in November 2017.Accordingly, the related party transactions for the year ended 31 December 2017 represented onlyeleven months’ transactions, the transactions with Shanghai Chouyu is not disclosed for the four monthsended 30 April 2018 and the balances with Shanghai Chouyu is not disclosed as at 31 December 2017and 30 April 2018.

(iii) Zhoushan Benteng was Third Harbor Construction’s subsidiary since its incorporation. In July 2017,Third Harbor Construction disposed all of the equity interests in Zhoushan Benteng to Watts Gallop.

(iv) Watts Gallop disposed its equity interests in Tonglu Benteng Construction Material Products Co., Ltd. InOctober 2015. Accordingly, the related party transactions for the year ended 31 December 2015represented only ten months’ transactions, the transactions with Tonglu Benteng Construction MaterialProducts Co., Ltd. is not disclosed for the year ended 31 December 2016, 2017 and the four monthsended 30 April 2017 and 2018, and the balances with Tonglu Benteng Construction Material ProductsCo., Ltd is not disclosed as at 31 December 2015, 2016, 2017 and 30 April 2017 and 2018.

(v) Mr. Wang Wei disposed his equity interests in Shanghai Tianzhou Ocean Engineering Co., Ltd. InNovember 2017. Accordingly, the related party transactions for the year ended 31 December 2017represented only eleven months’ transactions, the transactions with Shanghai Tianzhou OceanEngineering Co., Ltd. is not disclosed for the four months ended 30 April 2018, and the balances withShanghai Tianzhou Ocean Engineering Co., Ltd. is not disclosed as at 31 December 2017 and 30 April2018.

(vi) Jiangsu DOTA International Trade Co., Ltd. was an subsidiary of Third Harbor Construction, and ThirdHarbor Construction disposed its equity interests in Jiangsu DOTA International Trade Co., Ltd. in July2017. Accordingly, the related party transactions for the year ended 31 December 2017 representedonly seven months’ transactions, the transactions with Jiangsu DOTA International Trade Co., Ltd is notdisclosed for the four months ended 30 April 2018, and the balances with Jiangsu DOTA InternationalTrade Co., Ltd. is not disclosed as at 31 December 2017 and 30 April 2018.

(a) Transactions with related parties

Save as disclosed elsewhere in the Financial Information, during the Relevant Periods, the followingtransactions were carried out with related parties at terms mutually agreed by both parties:

(i) Sales of construction services


ended 30 April

2015 2016 2017 2017 2018


(unaudited)

Discontinued transactions– Shanghai Hongqi 1,800 1,800 – – –– Zhoushan Benteng 80 – – – –

1,880 1,800 – – –


– I-68 –


(ii) Purchases of goods and services


ended 30 April

2015 2016 2017 2017 2018


(unaudited)

Continuing transactions– Jiangsu Shenyu Port

Engineering Co., Ltd. 4,816 29,534 3,642 – –– Zhoushan Benteng 28,850 11,176 18,631 1,314 –

33,666 40,710 22,273 1,314 –

Discontinued transactions– Shanghai Tianzhou

Ocean EngineeringCo., Ltd. – 7,514 – – –

– Shanghai Hongqi 15,208 12,971 – – –– Zhejiang Benteng

TransportationEngineering Co., Ltd. 2,005 2,621 – – –

– Jiangsu DOTAInternational Trade Co.,Ltd. – 1,675 66,306 17,089 –

– Shanghai Chouyu – 25,323 – – –– Tonglu Benteng

Construction MaterialProducts Co., Ltd. 868 – – – –

– Zhejiang BentengMunicipal GardenConstructionEngineering Co., Ltd. 21,652 15,098 9,584 6,534 –

39,733 65,202 75,890 23,623 –

73,399 105,912 98,163 24,937 –

(iii) Purchases of fixed assets


ended 30 April

2015 2016 2017 2017 2018


(unaudited)

Discontinued transactions– Jiangsu DOTA

International Trade Co.,Ltd. – 669 2,338 2,338 –

The related party transactions above were carried out on terms mutually agreed between the parties. Inthe opinion of the directors of the Company, these transactions are in the ordinary courses of business of theGroup and in accordance with the terms of the underlying agreements.


– I-69 –


(iv) Key management compensation:

Key management includes directors and senior management. The compensation paid or payable to keymanagement for employee services is shown below:


ended 30 April

2015 2016 2017 2017 2018


(unaudited)

Salaries 527 528 774 257 291Bonus 646 739 874 254 308Pension, housing fund,

medical insurance andother welfare benefits 332 363 396 131 162

1,505 1,630 2,044 642 761

(b) Balances with related parties

(i) Amounts due from related parties


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade and retention receivables– Zhoushan Benteng 80 80 80 80– Shanghai Hongqi 1,800 3,600 – –

1,880 3,680 80 80


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Other receivables– Mr. Tang Liang 622 629 501 501– Shanghai Chouyu 562 11,688 – –– Zhejiang Benteng Transportation

Engineering – – 1,169 1,169– Yuxin Holding Co., Ltd – – 1,007 996

1,184 12,317 2,677 2,666


– I-70 –



30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Prepayment– Zhoushan Benteng 1,409 – – –

(ii) Amounts due to related parties


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Trade and retention payables– Zhejiang Benteng Municipal

Garden Construction EngineeringCo., Ltd. 176,165 137,183 46,800 27,003

– Jiangsu Shenyu Port EngineeringCo., Ltd. 1,541 18,074 13,037 10,092

– Zhoushan Benteng – 3,143 7,408 6,098– Shanghai Hongqi 60,128 32,451 – –– Shanghai Tianzhou Ocean

Engineering Co., Ltd. 47,987 3,350 – –– Zhejiang Benteng Transportation

Engineering Co., Ltd. 533 269 – –– Tonglu Benteng Construction

Material Products Co., Ltd. 688 – – –

287,042 194,470 67,245 43,193


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

Other payables– Zhejiang Benteng Municipal

Garden Construction EngineeringCo., Ltd. – 24 – –

– Zhejiang Benteng TransportationEngineering Co., Ltd. 1,455 628 – –

1,455 652 – –


– I-71 –


(iii) Amounts due from shareholders


30 April

2015 2016 2017 2018

RMB’000 RMB’000 RMB’000 RMB’000

– HuaZi Holding (Note 22) – – 8 –– Shareholders of Third Harbor

Construction (a) 321,808 344,942 294,484 296,681

321,808 344,942 294,492 296,681

(a) The amounts due from shareholders are non-trade in nature (Note 1.3(ii)).

The above balances are unsecured, interest free and receivables/repayable on demand. The carryingamount of the balances appropriated their fair value as at 31 December 2015, 2016 and 2017 and 30 April2018.

(c) Guarantee

As at 31 December 2015 and 2016, Third Harbor Construction has provided financial guarantees for certainrelated parties of the Group, as follows:

As at 31 December

2015 2016

RMB’000 RMB’000

– Shanghai Longbo Industrial Investment Co., Ltd. 25,000 25,000– Zhoushan Benteng 80,000 70,000– Jiangsu Shenyu Port Engineering Co., Ltd. 12,000 12,000– Shanghai Hongqi 4,000 4,000– Watts Gallop 180,000 370,000– Zhejiang Sanmei Real Estate Development Co., Ltd. 300,000 300,000

601,000 781,000

There are no amounts/aggregate amounts paid or liability/aggregate liabilities incurred during the TrackRecord Period for the purpose of fulfilling the guarantee or discharging the security. The fair value of guaranteeprovided to related parties at initial recognition is not material to the Group.

As at 31 December 2017 and 30 April 2018, no financial guarantee has been provided by the Group to relatedparties.

30 CONTINGENCIES

As at 30 April 2018, there are two outstanding claims against Third Harbor Construction, while the legal entitywas no longer in our [REDACTED] Business scope. According to the legal advisors for these claims, potentially faceliability, legal fees and costs, and interest which are not expected to be significant. As such, these legal proceedingsindividually or in aggregate would not have material financial or operational adverse impact on the combinedfinancial statements.

Guarantee information is disclosed in Note 29(c).


– I-72 –


31 EVENTS AFTER THE BALANCE SHEET DATE

As disclosed in Note 1.2(2) and (10), upon the completion of the Reorganisation, a total amount ofapproximately RMB518,784,000 was recognised as a deemed distribution to shareholders in the combinedstatements of changes in equity.

Pursuant to the resolutions of the shareholders passed on 19 October 2018, subject to the capitalisation ofcertain sums standing to the credit of the share premium account of the Company, the authorised share capital of theCompany will be HK$100,000,000 divided into 10,000,000,000 shares, of which 825,400,000 shares will be allottedand issued fully paid or credited as fully paid by way of capitalisation of HK$6,163,931.64 standing to the credit of theshare premium account of the Company on the [REDACTED].

Except as disclosed above and elsewhere in this report, there are no other material subsequent eventsundertaken by the Company or by the Group after 30 April 2018.

III SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company or any of the

companies now comprising the Group in respect of any period subsequent to 30 April 2018 and

up to the date of this report. Save as disclosed in this report, no dividend or distribution has

been declared or made by the Company or any companies now comprising the Group in

respect of any period subsequent to 30 April 2018.


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[REDACTED]

APPENDIX II UNAUDITED PRO FORMA FINANCIAL INFORMATION

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[REDACTED]


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[REDACTED]


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[REDACTED]


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[REDACTED]


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Set out below is a summary of certain provisions of the Memorandum and Articles of

Association of the Company and of certain aspects of Cayman Islands company law.

The Company was incorporated in the Cayman Islands as an exempted company with

limited liability on 20 December 2017 under the Companies Law. The Company’s

constitutional documents consist of its Memorandum and its Articles.

MEMORANDUM OF ASSOCIATION

The Memorandum provides, inter alia, that the liability of members of the Company is

limited and that the objects for which the Company is established are unrestricted (and

therefore include acting as an investment company), and that the Company shall have and be

capable of exercising any and all of the powers at any time or from time to time exercisable by

a natural person or body corporate whether as principal, agent, contractor or otherwise and,

since the Company is an exempted company, that the Company will not trade in the Cayman

Islands with any person, firm or corporation except in furtherance of the business of the

Company carried on outside the Cayman Islands.

By special resolution the Company may alter the Memorandum with respect to any

objects, powers or other matters specified in it.

ARTICLES OF ASSOCIATION

The Articles were conditionally adopted on 19 October 2018. A summary of certain

provisions of the Articles is set out below.

Shares

Classes of shares

The share capital of the Company consists of ordinary shares.

Variation of rights of existing shares or classes of shares

Subject to the Companies Law, if at any time the share capital of the Company is divided

into different classes of shares, all or any of the special rights attached to any class of shares

may (unless otherwise provided for by the terms of issue of the shares of that class) be varied,

modified or abrogated either with the consent in writing of the holders of not less than

three-fourths in nominal value of the issued shares of that class or with the sanction of a

special resolution passed at a separate general meeting of the holders of the shares of that

class. The provisions of the Articles relating to general meetings shall mutatis mutandis apply

to every such separate general meeting, provided that the necessary quorum (other than at an

adjourned meeting) shall be not less than two persons together holding (or, in the case of a

shareholder being a corporation, by its duly authorised representative) or representing by

APPENDIX III SUMMARY OF THE CONSTITUTION OF OUR COMPANYAND CAYMAN ISLANDS COMPANY LAW

– III-1 –


proxy not less than one-third in nominal value of the issued shares of that class. Every holderof shares of the class shall be entitled on a poll to one vote for every such share held by him,and any holder of shares of the class present in person or by proxy may demand a poll.

Any special rights conferred upon the holders of any shares or class of shares shall not,unless otherwise expressly provided in the rights attaching to the terms of issue of suchshares, be deemed to be varied by the creation or issue of further shares ranking pari passutherewith.

Alteration of capital

The Company may, by an ordinary resolution of its members: (a) increase its share capitalby the creation of new shares of such amount as it thinks expedient; (b) consolidate or divideall or any of its share capital into shares of larger or smaller amount than its existing shares;(c) divide its unissued shares into several classes and attach to such shares any preferential,deferred, qualified or special rights, privileges or conditions; (d) subdivide its shares or any ofthem into shares of an amount smaller than that fixed by the Memorandum; (e) cancel anyshares which, at the date of the resolution, have not been taken or agreed to be taken by anyperson and diminish the amount of its share capital by the amount of the shares so cancelled;(f) make provision for the allotment and issue of shares which do not carry any voting rights;(g) change the currency of denomination of its share capital; and (h) reduce its share premiumaccount in any manner authorised and subject to any conditions prescribed by law.

Transfer of shares

Subject to the Companies Law and the requirements of the Stock Exchange, all transfersof shares shall be effected by an instrument of transfer in the usual or common form or in suchother form as the Board may approve and may be under hand or, if the transferor or transfereeis a Clearing House (as defined in the Articles) or its nominee(s), under hand or by machineimprinted signature, or by such other manner of execution as the Board may approve from timeto time.

Execution of the instrument of transfer shall be by or on behalf of the transferor and thetransferee, provided that the Board may dispense with the execution of the instrument oftransfer by the transferor or transferee or accept mechanically executed transfers. Thetransferor shall be deemed to remain the holder of a share until the name of the transferee isentered in the register of members of the Company in respect of that share.

The Board may, in its absolute discretion, at any time and from time to time remove anyshare on the principal register to any branch register or any share on any branch register to theprincipal register or any other branch register.

Unless the Board otherwise agrees, no shares on the principal register shall be removedto any branch register nor shall shares on any branch register be removed to the principalregister or any other branch register. All removals and other documents of title shall be lodged


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for registration and registered, in the case of shares on any branch register, at the relevant

registration office and, in the case of shares on the principal register, at the place at which the

principal register is located.

The Board may, in its absolute discretion, decline to register a transfer of any share (not

being a fully paid up share) to a person of whom it does not approve or on which the Company

has a lien. It may also decline to register a transfer of any share issued under any share option

scheme upon which a restriction on transfer subsists or a transfer of any share to more than

four joint holders.

The Board may decline to recognise any instrument of transfer unless a certain fee, up to

such maximum sum as the Stock Exchange may determine to be payable, is paid to the

Company, the instrument of transfer is properly stamped (if applicable), is in respect of only

one class of share and is lodged at the relevant registration office or the place at which the

principal register is located accompanied by the relevant share certificate(s) and such other

evidence as the Board may reasonably require is provided to show the right of the transferor

to make the transfer (and if the instrument of transfer is executed by some other person on his

behalf, the authority of that person so to do).

The register of members may, subject to the Listing Rules, be closed at such time or for

such period not exceeding in the whole 30 days in each year as the Board may determine (or

such longer period as the members of the Company may by ordinary resolution determine,

provided that such period shall not be extended beyond 60 days in any year).

Fully paid shares shall be free from any restriction on transfer (except when permitted by

the Stock Exchange) and shall also be free from all liens.

Power of the Company to purchase its own shares

The Company may purchase its own shares subject to certain restrictions and the Board

may only exercise this power on behalf of the Company subject to any applicable requirement

imposed from time to time by the Articles or any code, rules or regulations issued from time to

time by the Stock Exchange and/or the Securities and Futures Commission of Hong Kong.

Where the Company purchases for redemption a redeemable Share, purchases not made

through the market or by tender shall be limited to a maximum price and, if purchases are by

tender, tenders shall be available to all members alike.

Power of any subsidiary of the Company to own shares in the Company

There are no provisions in the Articles relating to the ownership of shares in the Company

by a subsidiary.


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Calls on shares and forfeiture of shares

The Board may, from time to time, make such calls as it thinks fit upon the members inrespect of any monies unpaid on the shares held by them respectively (whether on account ofthe nominal value of the shares or by way of premium) and not by the conditions of allotmentof such shares made payable at fixed times. A call may be made payable either in one sum orby instalments. If the sum payable in respect of any call or instalment is not paid on or beforethe day appointed for payment thereof, the person or persons from whom the sum is due shallpay interest on the same at such rate not exceeding 20 per cent per annum as the Board shallfix from the day appointed for payment to the time of actual payment, but the Board may waivepayment of such interest wholly or in part. The Board may, if it thinks fit, receive from anymember willing to advance the same, either in money or money’s worth, all or any part of themoney uncalled and unpaid or instalments payable upon any shares held by him, and inrespect of all or any of the monies so advanced the Company may pay interest at such rate (ifany) not exceeding 20 per cent per annum as the Board may decide.

If a member fails to pay any call or instalment of a call on the day appointed for payment,the Board may, for so long as any part of the call or instalment remains unpaid, serve not lessthan 14 days’ notice on the member requiring payment of so much of the call or instalment asis unpaid, together with any interest which may have accrued and which may still accrue up tothe date of actual payment. The notice shall name a further day (not earlier than the expirationof 14 days from the date of the notice) on or before which the payment required by the noticeis to be made, and shall also name the place where payment is to be made. The notice shallalso state that, in the event of non-payment at or before the appointed time, the shares inrespect of which the call was made will be liable to be forfeited.

If the requirements of any such notice are not complied with, any share in respect of whichthe notice has been given may at any time thereafter, before the payment required by thenotice has been made, be forfeited by a resolution of the Board to that effect. Such forfeiturewill include all dividends and bonuses declared in respect of the forfeited share and notactually paid before the forfeiture.

A person whose shares have been forfeited shall cease to be a member in respect of theforfeited shares but shall, nevertheless, remain liable to pay to the Company all monies which,as at the date of forfeiture, were payable by him to the Company in respect of the sharestogether with (if the Board shall in its discretion so require) interest thereon from the date offorfeiture until payment at such rate not exceeding 20 per cent per annum as the Board mayprescribe.

Directors

Appointment, retirement and removal

At any time or from time to time, the Board shall have the power to appoint any person asa Director either to fill a casual vacancy on the Board or as an additional Director to the existing


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Board subject to any maximum number of Directors, if any, as may be determined by the

members in general meeting. Any Director so appointed to fill a casual vacancy shall hold

office only until the first general meeting of the Company after his appointment and be subject

to re-election at such meeting. Any Director so appointed as an addition to the existing Board

shall hold office only until the first annual general meeting of the Company after his

appointment and be eligible for re-election at such meeting. Any Director so appointed by the

Board shall not be taken into account in determining the Directors or the number of Directors

who are to retire by rotation at an annual general meeting.

At each annual general meeting, one-third of the Directors for the time being shall retire

from office by rotation. However, if the number of Directors is not a multiple of three, then the

number nearest to but not less than one-third shall be the number of retiring Directors. The

Directors to retire in each year shall be those who have been in office longest since their last

re-election or appointment but, as between persons who became or were last re-elected

Directors on the same day, those to retire shall (unless they otherwise agree among

themselves) be determined by lot.

No person, other than a retiring Director, shall, unless recommended by the Board for

election, be eligible for election to the office of Director at any general meeting, unless notice

in writing of the intention to propose that person for election as a Director and notice in writing

by that person of his willingness to be elected has been lodged at the head office or at the

registration office of the Company. The period for lodgement of such notices shall commence

no earlier than the day after despatch of the notice of the relevant meeting and end no later

than seven days before the date of such meeting and the minimum length of the period during

which such notices may be lodged must be at least seven days.

A Director is not required to hold any shares in the Company by way of qualification nor

is there any specified upper or lower age limit for Directors either for accession to or retirement

from the Board.

A Director may be removed by an ordinary resolution of the Company before the

expiration of his term of office (but without prejudice to any claim which such Director may have

for damages for any breach of any contract between him and the Company) and the Company

may by ordinary resolution appoint another in his place. Any Director so appointed shall be

subject to the retirement by rotation provisions. The number of Directors shall not be less than

two.

The office of a Director shall be vacated if he:

(i) resigns;

(ii) dies;

(iii) is declared to be of unsound mind and the Board resolves that his office be vacated;


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(iv) becomes bankrupt or has a receiving order made against him or suspends paymentor compounds with his creditors generally;

(v) he is prohibited from being or ceases to be a director by operation of law;

(vi) without special leave, is absent from meetings of the Board for six consecutivemonths, and the Board resolves that his office is vacated;

(vii) has been required by the stock exchange of the Relevant Territory (as defined in theArticles) to cease to be a Director; or

(viii) is removed from office by the requisite majority of the Directors or otherwisepursuant to the Articles.

From time to time the Board may appoint one or more of its body to be managing director,joint managing director or deputy managing director or to hold any other employment orexecutive office with the Company for such period and upon such terms as the Board maydetermine, and the Board may revoke or terminate any of such appointments. The Board mayalso delegate any of its powers to committees consisting of such Director(s) or other person(s)as the Board thinks fit, and from time to time it may also revoke such delegation or revoke theappointment of and discharge any such committees either wholly or in part, and either as topersons or purposes, but every committee so formed shall, in the exercise of the powers sodelegated, conform to any regulations that may from time to time be imposed upon it by theBoard.

Power to allot and issue shares and warrants

Subject to the provisions of the Companies Law, the Memorandum and Articles andwithout prejudice to any special rights conferred on the holders of any shares or class ofshares, any share may be issued with or have attached to it such rights, or such restrictions,whether with regard to dividend, voting, return of capital or otherwise, as the Company may byordinary resolution determine (or, in the absence of any such determination or so far as thesame may not make specific provision, as the Board may determine). Any share may be issuedon terms that, upon the happening of a specified event or upon a given date and either at theoption of the Company or the holder of the share, it is liable to be redeemed.

The Board may issue warrants to subscribe for any class of shares or other securities ofthe Company on such terms as it may from time to time determine.

Where warrants are issued to bearer, no certificate in respect of such warrants shall beissued to replace one that has been lost unless the Board is satisfied beyond reasonable doubtthat the original certificate has been destroyed and the Company has received an indemnity insuch form as the Board thinks fit with regard to the issue of any such replacement certificate.

Subject to the provisions of the Companies Law, the Articles and, where applicable, therules of any stock exchange of the Relevant Territory and without prejudice to any special


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rights or restrictions for the time being attached to any shares or any class of shares, allunissued shares in the Company shall be at the disposal of the Board, which may offer, allot,grant options over or otherwise dispose of them to such persons, at such times, for suchconsideration and on such terms and conditions as it in its absolute discretion thinks fit,provided that no shares shall be issued at a discount.

Neither the Company nor the Board shall be obliged, when making or granting anyallotment of, offer of, option over or disposal of shares, to make, or make available, any suchallotment, offer, option or shares to members or others whose registered addresses are in anyparticular territory or territories where, in the absence of a registration statement or otherspecial formalities, this is or may, in the opinion of the Board, be unlawful or impracticable.However, no member affected as a result of the foregoing shall be, or be deemed to be, aseparate class of members for any purpose whatsoever.

Power to dispose of the assets of the Company or any of its subsidiaries

While there are no specific provisions in the Articles relating to the disposal of the assetsof the Company or any of its subsidiaries, the Board may exercise all powers and do all actsand things which may be exercised or done or approved by the Company and which are notrequired by the Articles or the Companies Law to be exercised or done by the Company ingeneral meeting, but if such power or act is regulated by the Company in general meeting,such regulation shall not invalidate any prior act of the Board which would have been valid ifsuch regulation had not been made.

Borrowing powers

The Board may exercise all the powers of the Company to raise or borrow money, tomortgage or charge all or any part of the undertaking, property and uncalled capital of theCompany and, subject to the Companies Law, to issue debentures, debenture stock, bondsand other securities of the Company, whether outright or as collateral security for any debt,liability or obligation of the Company or of any third party.

Remuneration

The Directors shall be entitled to receive, as ordinary remuneration for their services,such sums as shall from time to time be determined by the Board or the Company in generalmeeting, as the case may be, such sum (unless otherwise directed by the resolution by whichit is determined) to be divided among the Directors in such proportions and in such manner asthey may agree or, failing agreement, either equally or, in the case of any Director holdingoffice for only a portion of the period in respect of which the remuneration is payable, pro rata.The Directors shall also be entitled to be repaid all expenses reasonably incurred by them inattending any Board meetings, committee meetings or general meetings or otherwise inconnection with the discharge of their duties as Directors. Such remuneration shall be inaddition to any other remuneration to which a Director who holds any salaried employment oroffice in the Company may be entitled by reason of such employment or office.


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Any Director who, at the request of the Company, performs services which in the opinion

of the Board go beyond the ordinary duties of a Director may be paid such special or extra

remuneration as the Board may determine, in addition to or in substitution for any ordinary

remuneration as a Director. An executive Director appointed to be a managing director, joint

managing director, deputy managing director or other executive officer shall receive such

remuneration and such other benefits and allowances as the Board may from time to time

decide. Such remuneration shall be in addition to his ordinary remuneration as a Director.

The Board may establish, either on its own or jointly in concurrence or agreement with

subsidiaries of the Company or companies with which the Company is associated in business,

or may make contributions out of the Company’s monies to, any schemes or funds for

providing pensions, sickness or compassionate allowances, life assurance or other benefits

for employees (which expression as used in this and the following paragraph shall include any

Director or former Director who may hold or have held any executive office or any office of

profit with the Company or any of its subsidiaries) and former employees of the Company and

their dependents or any class or classes of such persons.

The Board may also pay, enter into agreements to pay or make grants of revocable or

irrevocable, whether or not subject to any terms or conditions, pensions or other benefits to

employees and former employees and their dependents, or to any of such persons, including

pensions or benefits additional to those, if any, to which such employees or former employees

or their dependents are or may become entitled under any such scheme or fund as mentioned

above. Such pension or benefit may, if deemed desirable by the Board, be granted to an

employee either before and in anticipation of, or upon or at any time after, his actual

retirement.

Compensation or payments for loss of office

Payments to any present Director or past Director of any sum by way of compensation for

loss of office or as consideration for or in connection with his retirement from office (not being

a payment to which the Director is contractually or statutorily entitled) must be approved by the

Company in general meeting.

Loans and provision of security for loans to Directors

The Company shall not directly or indirectly make a loan to a Director or a director of any

holding company of the Company or any of their respective close associates, enter into any

guarantee or provide any security in connection with a loan made by any person to a Director

or a director of any holding company of the Company or any of their respective close

associates, or, if any one or more Directors hold(s) (jointly or severally or directly or indirectly)

a controlling interest in another company, make a loan to that other company or enter into any

guarantee or provide any security in connection with a loan made by any person to that other

company.


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Disclosure of interest in contracts with the Company or any of its subsidiaries

With the exception of the office of auditor of the Company, a Director may hold any other

office or place of profit with the Company in conjunction with his office of Director for such

period and upon such terms as the Board may determine, and may be paid such extra

remuneration for that other office or place of profit, in whatever form, in addition to any

remuneration provided for by or pursuant to any other Articles. A Director may be or become

a director, officer or member of any other company in which the Company may be interested,

and shall not be liable to account to the Company or the members for any remuneration or

other benefits received by him as a director, officer or member of such other company. The

Board may also cause the voting power conferred by the shares in any other company held or

owned by the Company to be exercised in such manner in all respects as it thinks fit, including

the exercise in favour of any resolution appointing the Directors or any of them to be directors

or officers of such other company.

No Director or intended Director shall be disqualified by his office from contracting with

the Company, nor shall any such contract or any other contract or arrangement in which any

Director is in any way interested be liable to be avoided, nor shall any Director so contracting

or being so interested be liable to account to the Company for any profit realised by any such

contract or arrangement by reason only of such Director holding that office or the fiduciary

relationship established by it. A Director who is, in any way, materially interested in a contract

or arrangement or proposed contract or arrangement with the Company shall declare the

nature of his interest at the earliest meeting of the Board at which he may practically do so.

There is no power to freeze or otherwise impair any of the rights attaching to any share by

reason that the person or persons who are interested directly or indirectly in that share have

failed to disclose their interests to the Company.

A Director shall not vote or be counted in the quorum on any resolution of the Board in

respect of any contract or arrangement or proposal in which he or any of his close associate(s)

has/have a material interest, and if he shall do so his vote shall not be counted nor shall he be

counted in the quorum for that resolution, but this prohibition shall not apply to any of the

following matters:

(i) the giving of any security or indemnity to the Director or his close associate(s) in

respect of money lent or obligations incurred or undertaken by him or any of them at

the request of or for the benefit of the Company or any of its subsidiaries;

(ii) the giving of any security or indemnity to a third party in respect of a debt or

obligation of the Company or any of its subsidiaries for which the Director or his close

associate(s) has/have himself/themselves assumed responsibility in whole or in part

whether alone or jointly under a guarantee or indemnity or by the giving of security;


– III-9 –


(iii) any proposal concerning an offer of shares, debentures or other securities of or by

the Company or any other company which the Company may promote or be

interested in for subscription or purchase, where the Director or his close

associate(s) is/are or is/are to be interested as a participant in the [REDACTED] or

[REDACTED] of the offer;

(iv) any proposal or arrangement concerning the benefit of employees of the Company

or any of its subsidiaries, including the adoption, modification or operation of either:

(i) any employees’ share scheme or any share incentive or share option scheme

under which the Director or his close associate(s) may benefit; or (ii) any of a

pension fund or retirement, death or disability benefits scheme which relates to

Directors, their close associates and employees of the Company or any of its

subsidiaries and does not provide in respect of any Director or his close associate(s)

any privilege or advantage not generally accorded to the class of persons to which

such scheme or fund relates; and

(v) any contract or arrangement in which the Director or his close associate(s) is/are

interested in the same manner as other holders of shares, debentures or other

securities of the Company by virtue only of his/their interest in those shares,

debentures or other securities.

Proceedings of the Board

The Board may meet anywhere in the world for the despatch of business and may adjourn

and otherwise regulate its meetings as it thinks fit. Questions arising at any meeting shall be

determined by a majority of votes. In the case of an equality of votes, the chairman of the

meeting shall have a second or casting vote.

Alterations to the constitutional documents and the Company’s name

To the extent that the same is permissible under Cayman Islands law and subject to the

Articles, the Memorandum and Articles of the Company may only be altered or amended, and

the name of the Company may only be changed, with the sanction of a special resolution of the

Company.

Meetings of member

Special and ordinary resolutions

A special resolution of the Company must be passed by a majority of not less than

three-fourths of the votes cast by such members as, being entitled so to do, vote in person or

by proxy or, in the case of members which are corporations, by their duly authorised

representatives or by proxy at a general meeting of which notice specifying the intention to

propose the resolution as a special resolution has been duly given.


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Under the Companies Law, a copy of any special resolution must be forwarded to the[REDACTED] within 15 days of being passed.

An ordinary resolution, by contrast, is a resolution passed by a simple majority of thevotes of such members of the Company as, being entitled to do so, vote in person or, in thecase of members which are corporations, by their duly authorised representatives or by proxyat a general meeting of which notice has been duly given.

A resolution in writing signed by or on behalf of all members shall be treated as anordinary resolution duly passed at a general meeting of the Company duly convened and held,and where relevant as a special resolution so passed.

Voting rights and right to demand a poll

Subject to any special rights, restrictions or privileges as to voting for the time beingattached to any class or classes of shares at any general meeting: (a) on a poll every memberpresent in person or by proxy or, in the case of a member being a corporation, by its dulyauthorised representative shall have one vote for every share which is fully paid or credited asfully paid registered in his name in the register of members of the Company, provided that noamount paid up or credited as paid up on a share in advance of calls or instalments is treatedfor this purpose as paid up on the share; and (b) on a show of hands every member who ispresent in person (or, in the case of a member being a corporation, by its duly authorisedrepresentative) or by proxy shall have one vote. Where more than one proxy is appointed bya member which is a Clearing House or its nominee(s), each such proxy shall have one voteon a show of hands. On a poll, a member entitled to more than one vote need not use all hisvotes or cast all the votes he does use in the same way.

At any general meeting a resolution put to the vote of the meeting is to be decided by pollsave that the chairman of the meeting may, pursuant to the Listing Rules, allow a resolution tobe voted on by a show of hands. Where a show of hands is allowed, before or on thedeclaration of the result of the show of hands, a poll may be demanded by (in each case bymembers present in person or by proxy or by a duly authorised corporate representative):

(i) at least two members;

(ii) any member or members representing not less than one-tenth of the total votingrights of all the members having the right to vote at the meeting; or

(iii) a member or members holding shares in the Company conferring a right to vote atthe meeting on which an aggregate sum has been paid equal to not less thanone-tenth of the total sum paid up on all the shares conferring that right.

Should a Clearing House or its nominee(s) be a member of the Company, such person orpersons may be authorised as it thinks fit to act as its representative(s) at any meeting of theCompany or at any meeting of any class of members of the Company provided that, if more


– III-11 –


than one person is so authorised, the authorisation shall specify the number and class ofshares in respect of which each such person is so authorised. A person authorised inaccordance with this provision shall be deemed to have been duly authorised without furtherevidence of the facts and be entitled to exercise the same rights and powers on behalf of theClearing House or its nominee(s) as if such person were an individual member including theright to vote individually on a show of hands.

Where the Company has knowledge that any member is, under the Listing Rules,required to abstain from voting on any particular resolution or restricted to voting only for oronly against any particular resolution, any votes cast by or on behalf of such member incontravention of such requirement or restriction shall not be counted.

Annual general meetings

The Company must hold an annual general meeting each year other than the year of theCompany’s adoption of the Articles. Such meeting must be held not more than 15 months afterthe holding of the last preceding annual general meeting, or such longer period as may beauthorised by the Stock Exchange at such time and place as may be determined by the Board.

Notices of meetings and business to be conducted

An annual general meeting of the Company shall be called by at least 21 days’ (and notless than 20 clear business days’) notice in writing, and any other general meeting of theCompany shall be called by at least 14 days’ (and not less than 10 clear business days’) noticein writing. The notice shall be exclusive of the day on which it is served or deemed to be servedand of the day for which it is given, and must specify the time, place and agenda of the meetingand particulars of the resolution(s) to be considered at that meeting and, in the case of specialbusiness, the general nature of that business.

Except where otherwise expressly stated, any notice or document (including a sharecertificate) to be given or issued under the Articles shall be in writing, and may be served bythe Company on any member personally, by post to such member’s registered address or (inthe case of a notice) by advertisement in the newspapers. Any member whose registeredaddress is outside Hong Kong may notify the Company in writing of an address in Hong Kongwhich shall be deemed to be his registered address for this purpose. Subject to the CompaniesLaw and the Listing Rules, a notice or document may also be served or delivered by theCompany to any member by electronic means.

Although a meeting of the Company may be called by shorter notice than as specifiedabove, such meeting may be deemed to have been duly called if it is so agreed:

(i) in the case of an annual general meeting, by all members of the Company entitled toattend and vote thereat; and

(ii) in the case of any other meeting, by a majority in number of the members having aright to attend and vote at the meeting holding not less than 95 per cent of the totalvoting rights in the Company.


– III-12 –


All business transacted at an extraordinary general meeting shall be deemed special

business. All business shall also be deemed special business where it is transacted at an

annual general meeting, with the exception of certain routine matters which shall be deemed

ordinary business.

Quorum for meetings and separate class meetings

No business shall be transacted at any general meeting unless a quorum is present when

the meeting proceeds to business, and continues to be present until the conclusion of the

meeting.

The quorum for a general meeting shall be two members present in person (or in the case

of a member being a corporation, by its duly authorised representative) or by proxy and entitled

to vote. In respect of a separate class meeting (other than an adjourned meeting) convened to

sanction the modification of class rights the necessary quorum shall be two persons holding or

representing by proxy not less than one-third in nominal value of the issued shares of that

class.

Proxies

Any member of the Company entitled to attend and vote at a meeting of the Company is

entitled to appoint another person as his proxy to attend and vote instead of him. A member

who is the holder of two or more shares may appoint more than one proxy to represent him and

vote on his behalf at a general meeting of the Company or at a class meeting. A proxy need not

be a member of the Company and shall be entitled to exercise the same powers on behalf of

a member who is an individual and for whom he acts as proxy as such member could exercise.

In addition, a proxy shall be entitled to exercise the same powers on behalf of a member which

is a corporation and for which he acts as proxy as such member could exercise if it were an

individual member. On a poll or on a show of hands, votes may be given either personally (or,

in the case of a member being a corporation, by its duly authorised representative) or by proxy.

The instrument appointing a proxy shall be in writing under the hand of the appointor or

of his attorney duly authorised in writing, or if the appointor is a corporation, either under seal

or under the hand of a duly authorised officer or attorney. Every instrument of proxy, whether

for a specified meeting or otherwise, shall be in such form as the Board may from time to time

approve, provided that it shall not preclude the use of the two-way form. Any form issued to a

member for appointing a proxy to attend and vote at an extraordinary general meeting or at an

annual general meeting at which any business is to be transacted shall be such as to enable

the member, according to his intentions, to instruct the proxy to vote in favour of or against (or,

in default of instructions, to exercise his discretion in respect of) each resolution dealing with

any such business.


– III-13 –


Members’ requisition for meetings

Extraordinary general meetings shall be convened on the requisition of one or more

members holding, as at the date of deposit of the requisition, not less than one-tenth of the paid

up capital of the Company having the right of voting at general meetings. Such requisition shall

be made in writing to the Board or the secretary of the Company for the purpose of requiring

an extraordinary general meeting to be called by the Board for the transaction of any business

specified in such requisition. Such meeting shall be held within two months after the deposit of

such requisition. If within 21 days of such deposit, the Board fails to proceed to convene such

meeting, the requisitionist(s) himself (themselves) may do so in the same manner, and all

reasonable expenses incurred by the requisitionist(s) as a result of the failure of the Board

shall be reimbursed to the requisitionist(s) by the Company.

Accounts and audit

The Board shall cause proper books of account to be kept of the sums of money received

and expended by the Company, and of the assets and liabilities of the Company and of all other

matters required by the Companies Law (which include all sales and purchases of goods by

the company) necessary to give a true and fair view of the state of the Company’s affairs and

to show and explain its transactions.

The books of accounts of the Company shall be kept at the head office of the Company

or at such other place or places as the Board decides and shall always be open to inspection

by any Director. No member (other than a Director) shall have any right to inspect any account,

book or document of the Company except as conferred by the Companies Law or ordered by

a court of competent jurisdiction or authorised by the Board or the Company in general

meeting.

The Board shall from time to time cause to be prepared and laid before the Company at

its annual general meeting balance sheets and profit and loss accounts (including every

document required by law to be annexed thereto), together with a copy of the Directors’ report

and a copy of the auditors’ report, not less than 21 days before the date of the annual general

meeting. Copies of these documents shall be sent to every person entitled to receive notices

of general meetings of the Company under the provisions of the Articles together with the

notice of annual general meeting, not less than 21 days before the date of the meeting.

Subject to the rules of the stock exchange of the Relevant Territory, the Company may

send summarised financial statements to shareholders who have, in accordance with the rules

of the stock exchange of the Relevant Territory, consented and elected to receive summarised

financial statements instead of the full financial statements. The summarised financial

statements must be accompanied by any other documents as may be required under the rules

of the stock exchange of the Relevant Territory, and must be sent to those shareholders that

have consented and elected to receive the summarised financial statements not less than 21

days before the general meeting.


– III-14 –


The Company shall appoint auditor(s) to hold office until the conclusion of the next annual

general meeting on such terms and with such duties as may be agreed with the Board. The

auditors’ remuneration shall be fixed by the Company in general meeting or by the Board if

authority is so delegated by the members. The members may, at any general meeting

convened and held in accordance with the Articles, remove the auditors by special resolution

at any time before the expiration of the term of office and shall, by ordinary resolution, at that

meeting appoint new auditors in its place for the remainder of the term.

The auditors shall audit the financial statements of the Company in accordance with

generally accepted accounting principles of Hong Kong, the International Accounting

Standards or such other standards as may be permitted by the Stock Exchange.

Dividends and other methods of distribution

The Company in general meeting may declare dividends in any currency to be paid to the

members but no dividend shall be declared in excess of the amount recommended by the

Board.

Except in so far as the rights attaching to, or the terms of issue of, any share may

otherwise provide:

(i) all dividends shall be declared and paid according to the amounts paid up on the

shares in respect of which the dividend is paid, although no amount paid up on a

share in advance of calls shall for this purpose be treated as paid up on the share;

(ii) all dividends shall be apportioned and paid pro rata in accordance with the amount

paid up on the shares during any portion(s) of the period in respect of which the

dividend is paid; and

(iii) the Board may deduct from any dividend or other monies payable to any member all

sums of money (if any) presently payable by him to the Company on account of calls,

instalments or otherwise.

Where the Board or the Company in general meeting has resolved that a dividend should

be paid or declared, the Board may resolve:

(i) that such dividend be satisfied wholly or in part in the form of an allotment of shares

credited as fully paid up, provided that the members entitled to such dividend will be

entitled to elect to receive such dividend (or part thereof) in cash in lieu of such

allotment; or

(ii) that the members entitled to such dividend will be entitled to elect to receive an

allotment of shares credited as fully paid up in lieu of the whole or such part of the

dividend as the Board may think fit.


– III-15 –


Upon the recommendation of the Board, the Company may by ordinary resolution in

respect of any one particular dividend of the Company determine that it may be satisfied wholly

in the form of an allotment of shares credited as fully paid up without offering any right to

members to elect to receive such dividend in cash in lieu of such allotment.

Any dividend, bonus or other sum payable in cash to the holder of shares may be paid by

cheque or warrant sent through the post. Every such cheque or warrant shall be made payable

to the order of the person to whom it is sent and shall be sent at the holder’s or joint holders’

risk and payment of the cheque or warrant by the bank on which it is drawn shall constitute a

good discharge to the Company. Any one of two or more joint holders may give effectual

receipts for any dividends or other monies payable or property distributable in respect of the

shares held by such joint holders.

Whenever the Board or the Company in general meeting has resolved that a dividend be

paid or declared, the Board may further resolve that such dividend be satisfied wholly or in part

by the distribution of specific assets of any kind.

The Board may, if it thinks fit, receive from any member willing to advance the same, and

either in money or money’s worth, all or any part of the money uncalled and unpaid or

instalments payable upon any shares held by him, and in respect of all or any of the monies so

advanced may pay interest at such rate (if any) not exceeding 20 per cent per annum, as the

Board may decide, but a payment in advance of a call shall not entitle the member to receive

any dividend or to exercise any other rights or privileges as a member in respect of the share

or the due portion of the shares upon which payment has been advanced by such member

before it is called up.

All dividends, bonuses or other distributions unclaimed for one year after having been

declared may be invested or otherwise used by the Board for the benefit of the Company until

claimed and the Company shall not be constituted a trustee in respect thereof. All dividends,

bonuses or other distributions unclaimed for six years after having been declared may be

forfeited by the Board and, upon such forfeiture, shall revert to the Company.

No dividend or other monies payable by the Company on or in respect of any share shall

bear interest against the Company.

The Company may exercise the power to cease sending cheques for dividend

entitlements or dividend warrants by post if such cheques or warrants remain uncashed on two

consecutive occasions or after the first occasion on which such a cheque or warrant is returned

undelivered.


– III-16 –


Inspection of corporate records

For so long as any part of the share capital of the Company is listed on the StockExchange, any member may inspect any register of members of the Company maintained inHong Kong (except when the register of members is closed) without charge and require theprovision to him of copies or extracts of such register in all respects as if the Company wereincorporated under and were subject to the Hong Kong Companies Ordinance.

Rights of minorities in relation to fraud or oppression

There are no provisions in the Articles concerning the rights of minority members inrelation to fraud or oppression. However, certain remedies may be available to members of theCompany under Cayman Islands law, as summarised in the paragraph headed “Protection ofMinorities and Shareholders’ Suits” in this Appendix.

Procedures on liquidation

A resolution that the Company be wound up by the court or be wound up voluntarily shallbe a special resolution.

Subject to any special rights, privileges or restrictions as to the distribution of availablesurplus assets on liquidation for the time being attached to any class or classes of shares:

(i) if the Company is wound up and the assets available for distribution among themembers of the Company are more than sufficient to repay the whole of the capitalpaid up at the commencement of the winding up, then the excess shall be distributedpari passu among such members in proportion to the amount paid up on the sharesheld by them respectively; and

(ii) if the Company is wound up and the assets available for distribution among themembers as such are insufficient to repay the whole of the paid-up capital, suchassets shall be distributed so that, as nearly as may be, the losses shall be borne bythe members in proportion to the capital paid up on the shares held by them,respectively.

If the Company is wound up (whether the liquidation is voluntary or compelled by thecourt), the liquidator may, with the sanction of a special resolution and any other sanctionrequired by the Companies Law, divide among the members in specie or kind the whole or anypart of the assets of the Company, whether the assets consist of property of one kind ordifferent kinds, and the liquidator may, for such purpose, set such value as he deems fair uponany one or more class or classes of property to be so divided and may determine how suchdivision shall be carried out as between the members or different classes of members and themembers within each class. The liquidator may, with the like sanction, vest any part of theassets in trustees upon such trusts for the benefit of members as the liquidator thinks fit,provided that no member shall be compelled to accept any shares or other property uponwhich there is a liability.


– III-17 –


Subscription rights reserve

Provided that it is not prohibited by and is otherwise in compliance with the Companies

Law, if warrants to subscribe for shares have been issued by the Company and the Company

does any act or engages in any transaction which would result in the subscription price of such

warrants being reduced below the par value of the shares to be issued on the exercise of such

warrants, a subscription rights reserve shall be established and applied in paying up the

difference between the subscription price and the par value of such shares.

CAYMAN ISLANDS COMPANY LAW

The Company was incorporated in the Cayman Islands as an exempted company on 20

December 2017 subject to the Companies Law. Certain provisions of Cayman Islands

company law are set out below but this section does not purport to contain all applicable

qualifications and exceptions or to be a complete review of all matters of the Companies Law

and taxation, which may differ from equivalent provisions in jurisdictions with which interested

parties may be more familiar.

Company operations

An exempted company such as the Company must conduct its operations mainly outside

the Cayman Islands. An exempted company is also required to file an annual return each year

with the Registrar of Companies of the Cayman Islands and pay a fee which is based on the

amount of its authorised share capital.

Share capital

Under the Companies Law, a Cayman Islands company may issue ordinary, preference

or redeemable shares or any combination thereof. Where a company issues shares at a

premium, whether for cash or otherwise, a sum equal to the aggregate amount or value of the

premiums on those shares shall be transferred to an account, to be called the share premium

account. At the option of a company, these provisions may not apply to premiums on shares

of that company allotted pursuant to any arrangements in consideration of the acquisition or

cancellation of shares in any other company and issued at a premium. The share premium

account may be applied by the company subject to the provisions, if any, of its memorandum

and articles of association, in such manner as the company may from time to time determine

including, but without limitation, the following:

(i) paying distributions or dividends to members;

(ii) paying up unissued shares of the company to be issued to members as fully paid

bonus shares;

(iii) any manner provided in section 37 of the Companies Law;


– III-18 –


(iv) writing-off the preliminary expenses of the company; and

(v) writing-off the expenses of, or the commission paid or discount allowed on, any issueof shares or debentures of the company.

Notwithstanding the foregoing, no distribution or dividend may be paid to members out ofthe share premium account unless, immediately following the date on which the distribution ordividend is proposed to be paid, the company will be able to pay its debts as they fall due in theordinary course of business.

Subject to confirmation by the court, a company limited by shares or a company limited byguarantee and having a share capital may, if authorised to do so by its articles of association,by special resolution reduce its share capital in any way.

Financial assistance to purchase shares of a company or its holding company

There are no statutory prohibitions in the Cayman Islands on the granting of financialassistance by a company to another person for the purchase of, or subscription for, its own, itsholding company’s or a subsidiary’s shares. Therefore, a company may provide financialassistance provided the directors of the company, when proposing to grant such financialassistance, discharge their duties of care and act in good faith, for a proper purpose and in theinterests of the company. Such assistance should be on an arm’s-length basis.

Purchase of shares and warrants by a company and its subsidiaries

A company limited by shares or a company limited by guarantee and having a sharecapital may, if so authorised by its articles of association, issue shares which are to beredeemed or are liable to be redeemed at the option of the company or a member and, for theavoidance of doubt, it shall be lawful for the rights attaching to any shares to be varied, subjectto the provisions of the company’s articles of association, so as to provide that such shares areto be or are liable to be so redeemed. In addition, such a company may, if authorised to do soby its articles of association, purchase its own shares, including any redeemable shares; anordinary resolution of the company approving the manner and terms of the purchase will berequired if the articles of association do not authorise the manner and terms of such purchase.A company may not redeem or purchase its shares unless they are fully paid. Furthermore, acompany may not redeem or purchase any of its shares if, as a result of the redemption orpurchase, there would no longer be any issued shares of the company other than shares heldas treasury shares. In addition, a payment out of capital by a company for the redemption orpurchase of its own shares is not lawful unless, immediately following the date on which thepayment is proposed to be made, the company shall be able to pay its debts as they fall duein the ordinary course of business.

Shares that have been purchased or redeemed by a company or surrendered to thecompany shall not be treated as cancelled but shall be classified as treasury shares if held incompliance with the requirements of Section 37A(1) of the Companies Law. Any such shares


– III-19 –


shall continue to be classified as treasury shares until such shares are either cancelled ortransferred pursuant to the Companies Law.

A Cayman Islands company may be able to purchase its own warrants subject to and inaccordance with the terms and conditions of the relevant warrant instrument or certificate.Thus there is no requirement under Cayman Islands law that a company’s memorandum orarticles of association contain a specific provision enabling such purchases. The directors ofa company may under the general power contained in its memorandum of association be ableto buy, sell and deal in personal property of all kinds.

A subsidiary may hold shares in its holding company and, in certain circumstances, mayacquire such shares.

Dividends and distributions

Subject to a solvency test, as prescribed in the Companies Law, and the provisions, ifany, of the company’s memorandum and articles of association, a company may pay dividendsand distributions out of its share premium account. In addition, based upon English case lawwhich is likely to be persuasive in the Cayman Islands, dividends may be paid out of profits.

For so long as a company holds treasury shares, no dividend may be declared or paid,and no other distribution (whether in cash or otherwise) of the company’s assets (including anydistribution of assets to members on a winding up) may be made, in respect of a treasuryshare.

Protection of minorities and shareholders’ suits

It can be expected that the Cayman Islands courts will ordinarily follow English case lawprecedents (particularly the rule in the case of Foss vs. Harbottle and the exceptions to thatrule) which permit a minority member to commence a representative action against orderivative actions in the name of the company to challenge acts which are ultra vires, illegal,fraudulent (and performed by those in control of the Company) against the minority, orrepresent an irregularity in the passing of a resolution which requires a qualified (or special)majority which has not been obtained.

Where a company (not being a bank) is one which has a share capital divided into shares,the court may, on the application of members holding not less than one-fifth of the shares of thecompany in issue, appoint an inspector to examine the affairs of the company and, at thedirection of the court, to report on such affairs. In addition, any member of a company maypetition the court, which may make a winding up order if the court is of the opinion that it is justand equitable that the company should be wound up.

In general, claims against a company by its members must be based on the general lawsof contract or tort applicable in the Cayman Islands or be based on potential violation of theirindividual rights as members as established by a company’s memorandum and articles ofassociation.


– III-20 –


Disposal of assets

There are no specific restrictions on the power of directors to dispose of assets of acompany, however, the directors are expected to exercise certain duties of care, diligence andskill to the standard that a reasonably prudent person would exercise in comparablecircumstances, in addition to fiduciary duties to act in good faith, for proper purpose and in thebest interests of the company under English common law (which the Cayman Islands courtswill ordinarily follow).

Accounting and auditing requirements

A company must cause proper records of accounts to be kept with respect to: (i) all sumsof money received and expended by it; (ii) all sales and purchases of goods by it and (iii) itsassets and liabilities.

Proper books of account shall not be deemed to be kept if there are not kept such booksas are necessary to give a true and fair view of the state of the company’s affairs and to explainits transactions.

If a company keeps its books of account at any place other than at its registered office orany other place within the Cayman Islands, it shall, upon service of an order or notice by theTax Information Authority pursuant to the Tax Information Authority Law (2017 Revision) of theCayman Islands, make available, in electronic form or any other medium, at its registeredoffice copies of its books of account, or any part or parts thereof, as are specified in such orderor notice.

Exchange control

There are no exchange control regulations or currency restrictions in effect in the CaymanIslands.

Taxation

Pursuant to section 6 of the Tax Concessions Law (2018 Revision) of the CaymanIslands, the Company has obtained an undertaking from the Governor-in-Cabinet that:

(i) no law which is enacted in the Cayman Islands imposing any tax to be levied onprofits or income or gains or appreciation shall apply to the Company or itsoperations; and

(ii) no tax be levied on profits, income, gains or appreciations or which is in the natureof estate duty or inheritance tax shall be payable by the Company:

(a) on or in respect of the shares, debentures or other obligations of the Company;or


– III-21 –


(b) by way of withholding in whole or in part of any relevant payment as defined in

section 6(3) of the Tax Concessions Law (2018 Revision).

The undertaking for the Company is for a period of 20 years from 13 August 2018.

The Cayman Islands currently levy no taxes on individuals or corporations based upon

profits, income, gains or appreciations and there is no taxation in the nature of inheritance tax

or estate duty. There are no other taxes likely to be material to the Company levied by the

Government of the Cayman Islands save for certain stamp duties which may be applicable,

from time to time, on certain instruments.

Stamp duty on transfers

No stamp duty is payable in the Cayman Islands on transfers of shares of Cayman Islands

companies save for those which hold interests in land in the Cayman Islands.

Loans to directors

There is no express provision prohibiting the making of loans by a company to any of its

directors. However, the company’s articles of association may provide for the prohibition of

such loans under specific circumstances.

Inspection of corporate records

The members of a company have no general right to inspect or obtain copies of the

register of members or corporate records of the company. They will, however, have such rights

as may be set out in the company’s articles of association.

Register of members

A Cayman Islands exempted company may maintain its principal register of members and

any branch registers in any country or territory, whether within or outside the Cayman Islands,

as the company may determine from time to time. There is no requirement for an exempted

company to make any returns of members to the Registrar of Companies in the Cayman

Islands. The names and addresses of the members are, accordingly, not a matter of public

record and are not available for public inspection. However, an exempted company shall make

available at its registered office, in electronic form or any other medium, such register of

members, including any branch register of member, as may be required of it upon service of an

order or notice by the Tax Information Authority pursuant to the Tax Information Authority Law

(2017 Revision) of the Cayman Islands.


– III-22 –


Register of Directors and officers

Pursuant to the Companies Law, the Company is required to maintain at its registered

office a register of directors, alternate directors and officers which is not available for

inspection by the public. A copy of such register must be filed with the Registrar of Companies

in the Cayman Islands and any change must be notified to the Registrar within 60 days of any

change in such directors or officers, including a change of the name of such directors or

officers.

Winding up

A Cayman Islands company may be wound up by: (i) an order of the court; (ii) voluntarily

by its members; or (iii) under the supervision of the court.

The court has authority to order winding up in a number of specified circumstances

including where, in the opinion of the court, it is just and equitable that such company be so

wound up.

A voluntary winding up of a company (other than a limited duration company, for which

specific rules apply) occurs where the company resolves by special resolution that it be wound

up voluntarily or where the company in general meeting resolves that it be wound up

voluntarily because it is unable to pay its debt as they fall due. In the case of a voluntary

winding up, the company is obliged to cease to carry on its business from the commencement

of its winding up except so far as it may be beneficial for its winding up. Upon appointment of

a voluntary liquidator, all the powers of the directors cease, except so far as the company in

general meeting or the liquidator sanctions their continuance.

In the case of a members’ voluntary winding up of a company, one or more liquidators are

appointed for the purpose of winding up the affairs of the company and distributing its assets.

As soon as the affairs of a company are fully wound up, the liquidator must make a report

and an account of the winding up, showing how the winding up has been conducted and the

property of the company disposed of, and call a general meeting of the company for the

purposes of laying before it the account and giving an explanation of that account.

When a resolution has been passed by a company to wind up voluntarily, the liquidator or

any contributory or creditor may apply to the court for an order for the continuation of the

winding up under the supervision of the court, on the grounds that: (i) the company is or is likely

to become insolvent; or (ii) the supervision of the court will facilitate a more effective, economic

or expeditious liquidation of the company in the interests of the contributories and creditors. A

supervision order takes effect for all purposes as if it was an order that the company be wound

up by the court except that a commenced voluntary winding up and the prior actions of the

voluntary liquidator shall be valid and binding upon the company and its official liquidator.


– III-23 –


For the purpose of conducting the proceedings in winding up a company and assisting the

court, one or more persons may be appointed to be called an official liquidator(s). The court

may appoint to such office such person or persons, either provisionally or otherwise, as it

thinks fit, and if more than one person is appointed to such office, the court shall declare

whether any act required or authorised to be done by the official liquidator is to be done by all

or any one or more of such persons. The court may also determine whether any and what

security is to be given by an official liquidator on his appointment; if no official liquidator is

appointed, or during any vacancy in such office, all the property of the company shall be in the

custody of the court.

Reconstructions

Reconstructions and amalgamations may be approved by a majority in number

representing 75 per cent in value of the members or creditors, depending on the

circumstances, as are present at a meeting called for such purpose and thereafter sanctioned

by the courts. Whilst a dissenting member has the right to express to the court his view that the

transaction for which approval is being sought would not provide the members with a fair value

for their shares, the courts are unlikely to disapprove the transaction on that ground alone in

the absence of evidence of fraud or bad faith on behalf of management, and if the transaction

were approved and consummated the dissenting member would have no rights comparable to

the appraisal rights (that is, the right to receive payment in cash for the judicially determined

value of their shares) ordinarily available, for example, to dissenting members of a United

States corporation.

Take-overs

Where an offer is made by a company for the shares of another company and, within four

months of the offer, the holders of not less than 90 per cent of the shares which are the subject

of the offer accept, the offeror may, at any time within two months after the expiration of that

four-month period, by notice require the dissenting members to transfer their shares on the

terms of the offer. A dissenting member may apply to the Cayman Islands courts within one

month of the notice objecting to the transfer. The burden is on the dissenting member to show

that the court should exercise its discretion, which it will be unlikely to do unless there is

evidence of fraud or bad faith or collusion as between the offeror and the holders of the shares

who have accepted the offer as a means of unfairly forcing out minority members.

Indemnification

Cayman Islands law does not limit the extent to which a company’s articles of association

may provide for indemnification of officers and directors, save to the extent any such provision

may be held by the court to be contrary to public policy, for example, where a provision

purports to provide indemnification against the consequences of committing a crime.


– III-24 –


GENERAL

Harney Westwood & Riegels, the Company’s legal adviser on Cayman Islands law, have

sent to the Company a letter of advice summarising certain aspects of the Companies Law.

This letter, together with a copy of the Companies Law, is available for inspection as referred

to in the paragraph headed “Documents Available for Inspection” in Appendix V to this

document. Any person wishing to have a detailed summary of Cayman Islands company law

or advice on the differences between it and the laws of any jurisdiction with which he is more

familiar is recommended to seek independent legal advice.


– III-25 –


A. FURTHER INFORMATION ABOUT OUR GROUP

1. Incorporation

Our Company was incorporated as an exempted company with limited liability in theCayman Islands under the Companies Law on 20 December 2017. Our registered office islocated at Harneys Fiduciary (Cayman) Limited, 4th Floor, Harbour Place, 103 South ChurchStreet, P.O. Box 10240, Grand Cayman KY1-1002, Cayman Islands. Our Company hasestablished our principal place of business in Hong Kong at 40th Floor, Sunlight Tower, No.248 Queen’s Road East, Wanchai, Hong Kong and has been registered with the Registrar ofCompanies in Hong Kong as a non-Hong Kong company under Part 16 of the CompaniesOrdinance on 25 May 2018, with Mr. Wong Yu Kit has been appointed as the authorisedrepresentative of our Company for acceptance of service of process in Hong Kong. Theaddress for service of process is 40th Floor, Sunlight Tower, No. 248 Queen’s Road East,Wanchai, Hong Kong.

As our Company was incorporated in the Cayman Islands, it operates subject to theCayman Companies Law and its constitution comprises the memorandum of association andarticles of association. A summary of various provisions of the memorandum of associationand articles of association and relevant aspects of the Companies Law is set out in AppendixIII to this document.

2. Changes in share capital of our Company

The authorised share capital of our Company as at the date of its incorporation wasHK$380,000 divided into 38,000,000 Shares of HK$0.01 each. The following sets out thechanges in the Company’s issued share capital since our incorporation:

(a) On 20 December 2017, one Share was allotted and issued, credited as fully-paid, toHarneys Fiduciary (Cayman) Limited, the initial subscriber of our Company, whichwas subsequently transferred to HuaZi Holding Limited. On the same date, 509,599,168,532 and 231,868 Shares of par value of HK$0.01 each were allotted and issuedto HuaZi Holding Limited, Ye Wang Zhou Holding Limited and HZ&BT DevelopmentHolding Limited, respectively, credited as fully paid.

(b) On 10 April 2018, HuaZi Holding, Ye Wang Zhou Holding and HZ&BT DevelopmentHolding acquired further 509,600, 168,532 and 231,868 Shares respectively by wayof capital injection.

(c) On 11 April 2018, our Company, pursuant to the Subscription Agreement, issuedand allotted 180,000 Shares to Worldlink, credited as fully paid, representing[REDACTED]% of the total issued share capital of our Company as enlarged by thesubscription. As a result, our Company was owned as to approximately[REDACTED]%, [REDACTED]%, [REDACTED]% and [REDACTED]% by HuaZiHolding, Ye Wang Zhou Holding, HZ&BT Development Holding and Worldlink,respectively.

APPENDIX IV STATUTORY AND GENERAL INFORMATION

– IV-1 –


(d) On 20 April 2018, our Company issued and allotted 286,611, 94,768, 130,426 and

50,618 Shares, credited as fully paid, to HuaZi Holding, Ye Wang Zhou Holding,

HZ&BT Development Holding and Worldlink, respectively. As a result, our Company

was owned as to approximately [REDACTED]%, [REDACTED]%, [REDACTED]%

and [REDACTED]% by HuaZi Holding, Ye Wang Zhou Holding, HZ&BT

Development Holding and Worldlink, respectively.

(e) On 27 April 2018, our Company issued and allotted 48,113, 15,909, 21,894 and

8,497 Shares, credited as fully paid, to HuaZi Holding, Ye Wang Zhou Holding,

HZ&BT Development Holding and Worldlink, respectively. As a result, our Company

was owned as to approximately [REDACTED]%, [REDACTED]%, [REDACTED]%

and [REDACTED]% by HuaZi Holding, Ye Wang Zhou Holding, HZ&BT

Development Holding and Worldlink, respectively.

(f) On 19 October 2018, the authorised share capital of our Company was increased

from HK$380,000 divided into 38,000,000 Shares of a par value of HK$0.01 each to

HK$[REDACTED] divided into [REDACTED] Shares of a par value of HK$0.01 each

by the creation of additional [REDACTED] new Shares under a resolution in writing

passed by the then sole Shareholder referred to in the paragraph headed “A. Further

Information about our Group – 4. Written Resolutions of our then Shareholders” in

this Appendix.

Assuming that the [REDACTED] becomes unconditional, the [REDACTED] under the

[REDACTED] are issued, immediately upon completion of the [REDACTED] and the

[REDACTED] (assuming the [REDACTED] is not exercised and without taking into account

any Shares which may be issued pursuant to the exercise of any options which may be granted

under the Share Option Scheme), the issued share capital will be HK$[REDACTED] divided

into [REDACTED] Shares fully paid or credited as fully paid, and [REDACTED] Shares will

remain unissued. Other than any options which may be granted under the Share Option

Scheme, our Company does not have any present intention to issue any Shares out of the

authorised but unissued share capital of our Company.

3. Changes in share capital or number of issued shares of our Company’s subsidiaries

The subsidiaries of our Company are referred to in the Accountant’s Report as set out in


Save for the alterations disclosed in the section headed “History, Reorganisation and

Corporate Structure” in this document, there is no other alteration in the share capital or

registered share capital or number of issued shares of our subsidiaries which took place within

the two years immediately preceding the date in this document.


– IV-2 –


4. Written resolutions of our then Shareholders

Pursuant to the resolutions in writing passed by our then Shareholders on 19 October2018, among other matters:

(a) our Company approved and adopted the Memorandum and the Articles,conditionally upon the fulfillment of the Conditions and with effect from the[REDACTED];

(b) our Company increased its authorised share capital from HK$380,000 divided into38,000,000 Shares of par value HK$0.01 each to HK$[REDACTED] divided into[REDACTED] Shares of par value HK$0.01 each by the creation of additional[REDACTED] new Shares of par value HK$0.01 each, each ranking pari passu in allrespects with the Shares in issue at the date of passing of these resolutions;

(c) our Company adopted the rules of the Share Option Scheme, the principal terms ofwhich are set out in the paragraph headed “E. Share Option Scheme” in thisAppendix, conditional on, among others, the [REDACTED] granting of the[REDACTED] of, and permission to deal in, the Shares in issue and to be issuedpursuant to the [REDACTED], the [REDACTED] and the Share Option Scheme, ourDirectors are authorised to grant options and to allot, issue and deal with the Sharespursuant to the exercise of options granted under the Share Option Scheme;

(d) conditional on, among others, the [REDACTED] granting the [REDACTED] of, andpermission to deal in the Shares in issue and to be issued as mentioned in thisdocument and on the obligations of the [REDACTED] under the [REDACTED]becoming and remaining unconditional and not having being terminated inaccordance with the terms of the [REDACTED] on or before such dates as may bespecified in the [REDACTED] (“Conditions”);

(i) the [REDACTED] was approved and our Directors were authorised to allot andissue the new Shares under the [REDACTED];

(ii) conditional on the share premium account of our Company having sufficientbalance, or otherwise being credited as a result of the allotment and issue of the[REDACTED] by our Company pursuant to the [REDACTED], our Directorswere authorised to capitalise a sum of approximately HK$[REDACTED]standing to the credit of the share premium account of our Company byapplying such sum in paying up in full [REDACTED] Shares at par for allotmentand issue to the Shareholder(s) whose names appear on the register ofmembers or the principal [REDACTED] of our Company at the close ofbusiness on 19 October 2018 (or as each of them may direct) in proportion (asnearly as possible without involving fractions so that no fraction of a Share shallbe allotted and issued) to its/their respective shareholdings in our Company,and the Shares allotted and issued shall rank pari passu in all respects with thethen existing issued Shares;


– IV-3 –


(iii) the issue mandate was given to our Directors to exercise all powers of our

Company to allot, issue and deal with, otherwise than by way of rights issue,

scrip dividend schemes or similar arrangements, or a specific authority granted

by our Shareholders in accordance with the Articles, or pursuant to the exercise

of any options which have been or may be granted under the Share Option

Scheme, or under the [REDACTED] or the [REDACTED], Shares with a total

number not exceeding the sum of (aa) 20% of the total number of Shares in

issue immediately following completion of the [REDACTED] and the

[REDACTED] (excluding Shares which may be allotted and issued pursuant to

the exercise of the options which may be granted under the Share Option

Scheme); and (bb) the total number of Shares repurchased by our Company (if

any) pursuant to the general mandate to repurchase Shares granted to our

Directors until the conclusion of the next annual general meeting of our

Company, or the expiration of the period within which the next annual general

meeting of our Company is required by the Articles, the Companies Law or any

other applicable Cayman Islands laws to be held, or the passing of ordinary

resolutions by our Shareholders revoking or varying the authority given to our

Directors as set out in this paragraph (iii), whichever occurs first; and

(iv) the repurchase mandate (the “Repurchase Mandate”) was given to our

Directors to exercise all powers of our Company to repurchase Shares with a

total number of not more than 10% of the total number of Shares in issue

immediately following completion of the [REDACTED] and the [REDACTED]

until the conclusion of the next annual general meeting of our Company, or the

expiration of the period within which the next annual general meeting of our

Company is required by the Articles, the Companies Law or any other

applicable Cayman Islands laws to be held, or the passing of ordinary

resolutions by our Shareholders in general meeting revoking or varying the

authority given to our Directors as set out in this paragraph (iv), whichever

occurs first.

5. Corporate reorganisation

In preparation for the [REDACTED], our Group undertakes the Reorganisation. Please

refer to the paragraph headed “History, Reorganisation and Corporate Structure –

Reorganisation” in this document for further details.


– IV-4 –


6. Repurchase of our Company’s securities

This paragraph includes information relating to the repurchase of the Shares, includinginformation required by the Stock Exchange to be included in this document concerning suchrepurchase.

(a) Relevant legal and regulatory requirements

The Listing Rules permit our Shareholders to grant to our Directors a generalmandate to repurchase the Shares that are listed on the Stock Exchange. The mandateis required to be given by way of an ordinary resolution passed by our Shareholders at ageneral meeting.

(b) Shareholders’ approval

All proposed repurchases of Shares (which must be fully paid up) must be approvedin advance by ordinary resolutions of our Shareholders at a general meeting, either byway of general mandate or by specific approval of a particular transaction.

On 19 October 2018, our Directors were granted a general unconditional mandate torepurchase up to 10% of the total number of Shares in issue immediately following the[REDACTED] and the [REDACTED] (assuming the [REDACTED] is not exercised andwithout taking into account any Shares which may be issued pursuant to the exercise ofany options which may be granted under the Share Option Scheme) on the StockExchange or on any other stock exchange on which our Company’s securities may belisted and which is recognised by the SFC and the Stock Exchange for this purpose. Thismandate will expire at the earliest of (i) the conclusion of our Company’s next annualgeneral meeting, (ii) the date by which our Company’s next annual general meeting isrequired by our Articles or the Companies Law or applicable laws in the Cayman Islandsto be held; or (iii) such mandate being renewed, revoked or varied by ordinary resolutionsof our Shareholders at a general meeting (the “Relevant Period”).

(c) Source of funds

Our Company’s repurchase of the Shares listed on the Stock Exchange must befunded out of funds legally available for the purpose in accordance with our Articles, theCompanies Law and the applicable laws of the Cayman Islands. Our Company may notrepurchase the Shares on the Stock Exchange for consideration other than cash or forsettlement otherwise than in accordance with the trading rules of the Stock Exchange.Subject to the foregoing, under Cayman Islands law, our Company may makerepurchases out of our Company’s profits, or out of our Company’s share premiumaccount, or out of the proceeds of a fresh issue of Shares made for the purpose of therepurchase. Any premium payable on the purchase over the par value of the Shares to berepurchased must be provided for out of either or both the profits of our Company or ourCompany’s share premium account, before or at the time the Shares are repurchased.Subject to the Companies Law, the Company may also make a repurchase out of capital.


– IV-5 –


(d) Reasons for repurchases

Our Directors believe that it is in our Company’s and our Shareholders’ best interests

for our Directors to have general authority to execute repurchases of the Shares in the

market. The repurchases may, depending on market conditions and funding

arrangements at the time, lead to an enhancement of the net assets value per Share

and/or earnings per Share and will only be made where our Directors believe that the

repurchases will benefit our Company and our Shareholders.

(e) Funding of repurchases

In repurchasing securities, our Company may only apply funds legally available for

such purpose in accordance with our Articles, the Listing Rules, the Companies Law and

the applicable laws of the Cayman Islands.

On the basis of the current financial position of our Company as disclosed in this

document and taking into account the current working capital position of our Company,

our Directors believe that, if the Repurchase Mandate were to be exercised in full, it might

have a material adverse effect on the working capital and/or the gearing position of our

Company as compared with the position disclosed in this document. However, our

Directors do not propose to exercise the Repurchase Mandate to such an extent as

would, in the circumstances, have a material adverse effect on the working capital

requirements of our Company or the gearing levels which in the opinion of our Directors

are from time to time appropriate for our Company.

(f) Share capital

The exercise in full of the current Repurchase Mandate, on the basis of

[REDACTED] Shares in issue immediately after the [REDACTED] and the [REDACTED]

(assuming the [REDACTED] is not exercised and without taking into account any Shares

which may be issued pursuant to the exercise of any options which may be granted under

the Share Option Scheme) could accordingly result in up to [REDACTED] Shares being

repurchased by our Company during the Relevant Period.

(g) General

None of our Directors nor, to the best of their knowledge having made all reasonable

enquiries, any of their close associates, currently intends to sell any of the Shares to our

Company.

Our Directors have undertaken to the Stock Exchange that, so far as the same may

be applicable, they will exercise the Repurchase Mandate in accordance with the Listing

Rules, our Memorandum, our Articles, the Companies Law and any other applicable laws

of the Cayman Islands.


– IV-6 –


If, as a result of any repurchase of the Shares, a Shareholder’s proportionate interestin our Company’s voting rights is increased, such increase will be treated as anacquisition for the purpose of the Takeovers Code. Accordingly, a Shareholder or a groupof Shareholders acting in concert, depending on the level of increase of our Shareholder’sinterest, could obtain or consolidate control of our Company and become obliged to makea mandatory offer in accordance with Rule 26 of the Takeovers Code as a result of anysuch increase. Save as mentioned above, our Directors are not aware of anyconsequences of repurchases pursuant to the Repurchase Mandate which would ariseunder the Takeovers Code.

Our Directors will not exercise the Repurchase Mandate if the repurchase wouldresult in the number of Shares which are in the hands of the public falling below 25% ofthe total number of Shares in issue (or such other percentage as may be prescribed as theminimum public shareholding under the Listing Rules).

No core connected person of our Company has notified our Group that he, she or ithas a present intention to sell his, her or its Shares to our Company, or has undertakennot to do so, if the Repurchase Mandate is exercised.

B. FURTHER INFORMATION ABOUT OUR BUSINESS

1. Summary of our material contracts

Our Group has entered into the following contracts (not being contracts entered into in theordinary course of business) within the two years preceding the date of this document and areor may be material:

(a) an amendment and restatement of cooperation agreement dated 26 April 2018entered into between PTSP and Shanghai Third Harbor Benteng Construction andEngineering Co.,Ltd to amend and restate a cooperation agreement in relation to theestablishment of Benteng Indonesia in the business of port and waterwayconstruction between PTSP and Shanghai Third Harbor Benteng Construction andEngineering Co.,Ltd;

(b) a first novation agreement to cooperation agreement dated 26 April 2018 enteredinto among PTSP, PTPB and Shanghai Third Harbor Benteng Construction andEngineering Co.,Ltd, pursuant to which PTSP was replaced by PTPB and PTSPassigned all its rights and interest in the amendment and restatement of cooperationagreement under item (a) above to PTPB;

(c) a second novation agreement to cooperation agreement dated 26 April 2018 enteredinto among Shanghai Third Harbor Benteng Construction and Engineering Co, Ltd,PTPB and Engineering Prosper, pursuant to which Shanghai Third Harbor BentengConstruction and Engineering Co, Ltd was replaced by Engineering Prosper andShanghai Third Harbor Benteng Construction and Engineering Co, Ltd assigned allits rights and interest in the first novation agreement to cooperation agreementunder item (b) above to Engineering Prosper;


– IV-7 –


(d) an amendment and restatement of loan agreement dated 26 April 2018 entered intobetween PTSP as the borrower and Shanghai Third Harbor Benteng Constructionand Engineering Co. Ltd as the lender in relation to a loan agreement dated 20October 2016, pursuant to which Shanghai Third Harbor Benteng Construction andEngineering Co. Ltd agreed to provide a loan facility in the aggregate principalamount of USD330,000 to finance PTSP’s investment in Benteng Indonesia;

(e) a novation agreement to loan agreement dated 26 April 2018 entered into amongShanghai Third Harbor Benteng Construction and Engineering Co. Ltd as the lender,PTPB as the borrower and PTSP, pursuant to which PTSP was replaced by PTPBand PTSP assigned all its rights and interest in the loan agreement dated 20 October2016 and the amendment and restatement of loan agreement dated 26 April 2018under item (d) above to PTPB;

(f) a loan agreement dated 26 April 2018 entered into between Engineering Prosper asthe lender and PTPB as the borrower, pursuant to which PTPB acknowledged itsindebtedness to Engineering Prosper for a loan in the principal amount ofUSD330,000 to finance its investment in Benteng Indonesia;

(g) an amendment and restatement of pledge of shares agreement dated 26 April 2018entered into among PTSP as the pledgor, Shanghai Third Harbor BentengConstruction and Engineering Co. Ltd as the pledgee and Benteng Indonesia inrelation to an equity pledge agreement dated 20 October 2016, pursuant to whichPTSP pledged (1) its 330,000 shares in Benteng Indonesia and (2) any additionalshares in Benteng Indonesia issued or to be issued in the name of PTSP or acquiredor to be acquired by PTSP to Shanghai Third Harbor Benteng Construction andEngineering Co. Ltd to secure, among others, the loan in the total principal amountof USD330,000 that PTSP obtained from Shanghai Third Harbor BentengConstruction and Engineering Co. Ltd;

(h) a termination agreement to pledge of shares agreement dated 26 April 2018 enteredinto between PTSP and Shanghai Third Harbor Benteng Construction andEngineering Co. Ltd, pursuant to which the equity pledge agreement dated 20October 2016 and the amendment and restatement of pledge of shares agreementdated 26 April 2018 was annulled, cancelled, rescinded, ceased, voided andterminated with effect from 26 April 2018;

(i) a pledge of shares agreement dated 26 April 2018 entered into among PTPB as thepledgor, Shanghai Third Harbor Benteng Construction and Engineering Co. Ltd asthe pledgee and Benteng Indonesia, pursuant to which PTPB pledged (1) its 330,000shares in Benteng Indonesia and (2) any additional shares in Benteng Indonesiaissued or to be issued in the name of PTPB or acquired or to be acquired by PTPBto Shanghai Third Harbor Benteng Construction and Engineering Co. Ltd to secure,among others, the loan in the total principal amount of USD330,000 that PTPBobtained from Shanghai Third Harbor Benteng Construction and Engineering Co.Ltd;


– IV-8 –


(j) a pledge of shares agreement dated 26 April 2018 entered into among PTPB as thepledgor, Engineering Prosper as the pledgee and Benteng Indonesia, pursuant towhich PTPB pledged (1) its 330,000 shares in Benteng Indonesia and (2) anyadditional shares in Benteng Indonesia issued or to be issued in the name of PTPBor acquired or to be acquired by PTPB to Engineering Prosper to secure, amongothers, the loan in the total principal amount of USD330,000 that PTPB obtainedfrom Engineering Prosper;

(k) an assignment of rights to dividends agreement dated 26 April 2018 entered intoamong PTSP as the assignor, Shanghai Third Harbor Benteng Construction andEngineering Co. Ltd as the assignee and Benteng Indonesia, pursuant to whichPTSP assigned and transferred all of its rights and interests in all of the dividends orother income and amounts paid or to be paid by Benteng Indonesia with respect to(1) the shares registered under the name of PTSP in Benteng Indonesia and (2)shares to be issued in the name of PTSP or acquired or to be acquired by PTSP toShanghai Third Harbor Benteng Construction and Engineering Co. Ltd to secure,among others, the loan in the total principal amount of USD330,000 that PTSPborrowed from Shanghai Third Harbor Benteng Construction and Engineering Co.Ltd;

(l) a termination agreement to assignment of rights to dividends agreement dated 26April 2018 entered into between PTSP and Shanghai Third Harbor BentengConstruction and Engineering Co. Ltd, pursuant to which the assignment of rights todividends agreement dated 26 April 2018 under item (k) above was annulled,cancelled, rescinded, ceased, voided and terminated with effect from 26 April 2018;

(m) an assignment of rights to dividends agreement 26 April 2018 entered into amongPTPB as the assignor, Shanghai Third Harbor Benteng Construction andEngineering Co. Ltd as the assignee and Benteng Indonesia, pursuant to whichPTPB assigned and transferred all of its rights and interests in all of the dividends orother income and amounts paid or to be paid by Benteng Indonesia with respect to(1) the entire shares registered under the name of PTPB in Benteng Indonesia and(2) shares to be issued in the name of PTPB or acquired or to be acquired by PTPBto Shanghai Third Harbor Benteng Construction and Engineering Co. Ltd to secure,among others, the loan in the total principal amount of USD330,000 that PTPBobtained from Shanghai Third Harbor Benteng Construction and Engineering Co.Ltd;

(n) an assignment of rights to dividends agreement dated 26 April 2018 entered intoamong PTPB as the assignor, Engineering Prosper as the assignee and BentengIndonesia, pursuant to which PTPB assigned and transferred all of its rights andinterests in all of the dividends or other income and amounts paid or to be paid byBenteng Indonesia with respect to (1) the entire shares registered under the name ofPTPB in Benteng Indonesia and (2) shares to be issued in the name of PTPB oracquired or to be acquired by PTPB to Engineering Prosper to secure, amongothers, the loan in the total principal amount of USD330,000 that PTPB obtainedfrom Engineering Prosper;


– IV-9 –


(o) an option agreement dated 26 April 2018 entered into between PTSP and ShanghaiThird Harbor Benteng Construction and Engineering Co. Ltd, pursuant to whichPTSP granted Shanghai Third Harbor Benteng Construction and Engineering Co.Ltd an option to purchase all of the 33% of the issued capital owned by PTSP inBenteng Indonesia (the “PTSP Option Shares”) at the option price of USD1 freefrom any mortgage, pledge, lien or charge or any security or encumbrance, andShanghai Third Harbor Benteng Construction and Engineering Co. Ltd may at anytime exercise the call option with regard to the PTSP Option Shares;

(p) a termination agreement to option agreement dated 26 April 2018 entered intobetween PTSP and Shanghai Third Harbor Benteng Construction and EngineeringCo. Ltd, pursuant to which the option agreement dated 26 April under item (o) abovewas annulled, cancelled, rescinded, ceased, voided and terminated with effect from26 April 2018;

(q) an option agreement dated 26 April 2018 entered into between PTPB and ShanghaiThird Harbor Benteng Construction and Engineering Co. Ltd, pursuant to whichPTPB granted Shanghai Third Harbor Benteng Construction and Engineering Co.Ltd an option to purchase all of the 33% of the issued capital owned by PTPB inBenteng Indonesia (the “PTPB Option Shares”) at the option price of USD1 freefrom any mortgage, pledge, lien or charge or any security or encumbrance, andShanghai Third Harbor Benteng Construction and Engineering Co. Ltd may at anytime exercise the call option with regard to the PTPB Option Shares;

(r) an option agreement dated 26 April 2018 entered into between PTPB andEngineering Prosper, pursuant to which PTPB granted Engineering Prosper anoption to purchase the PTPB Option Shares as defined under item(q) above at theoption price of USD1 free from any mortgage, pledge, lien or charge or any securityor encumbrance, and Engineering Prosper may at any time exercise the call optionwith regard to the PTPB Option Shares as defined under item(q) above;

(s) a power of attorney to sell dated 26 April 2018 entered into between PTSP as theauthoriser and Shanghai Third Harbor Benteng Construction and Engineering Co.Ltd as the attorney, pursuant to which PTSP agreed to grant power of attorney toShanghai Third Harbor Benteng Construction and Engineering Co. Ltd to sell the330,000 shares owned by PTSP in Benteng Indonesia;

(t) a cancellation of power of attorney to sell dated 26 April 2018 entered into betweenPTSP as the authoriser and Shanghai Third Harbor Benteng Construction andEngineering, Co, Ltd as the attorney, pursuant to which the power of attorney to selldated 26 April 2018 under item (s) above was annulled, cancelled, rescinded,ceased, voided and terminated with effect from 26 April 2018;

(u) a power of attorney to sell dated 26 April 2018 entered into between PTPB as theauthoriser and Shanghai Third Harbor Benteng Construction and Engineering Co.Ltd as the attorney, pursuant to which PTPB agreed to grant power of attorney toShanghai Third Harbor Benteng Construction and Engineering Co. Ltd to sell the330,000 shares owned by PTPB in Benteng Indonesia;


– IV-10 –


(v) a power of attorney to sell dated 26 April 2018 entered into between PTPB as theauthoriser and Engineering Prosper as the attorney, pursuant to which PTPB agreedto grant power of attorney to Engineering Prosper to sell the 330,000 shares ownedby PTPB in Benteng Indonesia;

(w) a power of attorney to vote dated 26 April 2018 entered into between PTSP as theauthoriser and Shanghai Third Harbor Benteng Construction and Engineering Co.Ltd as the attorney, pursuant to which PTSP agreed to grant power of attorney toShanghai Third Harbor Benteng Construction and Engineering Co. Ltd to, amongother things, attend the shareholders’ meeting and to exercise voting rights in the330,000 shares owned by PTSP in Benteng Indonesia;

(x) a cancellation of power of attorney to vote dated 26 April 2018 entered into betweenPTSP as the authoriser and Shanghai Third Harbor Benteng Construction andEngineering, Co, Ltd as the attorney, pursuant to which the power of attorney to votedated 26 April 2018 under item (w) above was annulled, cancelled, rescinded,ceased, voided and terminated with effect from 26 April 2018;

(y) a power of attorney to vote dated 26 April 2018 entered into between PTPB as theauthoriser and Shanghai Third Harbor Benteng Construction and Engineering Co.Ltd as the attorney, pursuant to which PTPB agreed to grant power of attorney toShanghai Third Harbor Benteng Construction and Engineering Co. Ltd to, amongother things, attend the shareholders’ meeting and to exercise voting rights in the330,000 shares owned by PTPB in Benteng Indonesia;

(z) a power of attorney to vote dated 26 April 2018 entered into between PTPB as theauthoriser and Engineering Prosper as the attorney, pursuant to which PTPB agreedto grant power of attorney to Engineering Prosper to, among other things, attend theshareholders’ meeting and to exercise voting rights in the 330,000 shares owned byPTPB in Benteng Indonesia;

(aa) a deed of share purchase (No. 59) dated 26 April 2018 entered into between ThirdHarbor Construction as the seller and Engineering Prosper as the buyer, pursuant towhich Third Harbor Construction agreed to sell and transfer 670,000 shares inBenteng Indonesia to Engineering Prosper;

(bb) a first supplemental agreement to deed of sale and purchase of shares dated 26April 2018 entered into among Third Harbor Construction as the seller, EngineeringProsper as the purchaser and Benteng Indonesia, pursuant to which the article 2.1of the deed of sale and purchase of shares was replaced and restated that ThirdHarbor Construction agrees to transfer 670,000 shares in Benteng Indonesia at aconsideration of RMB5,792,805.47 to be satisfied by the Company issuing andallotting 48,113; 15,909; 21,894 and 8,497 shares, credited as fully paid, to HuaZiHolding, Ye Wang Zhou Holding, HZ&BT Development Holding and Worldlinkrespectively;

(cc) an assignment of receivables agreement dated 26 April 2018 entered into betweenShanghai Third Harbor Benteng Construction and Engineering Co. Ltd as theassignor and Engineering Prosper as the assignee, pursuant to which ShanghaiThird Harbor Benteng Construction and Engineering Co. Ltd transferred to


– IV-11 –


Engineering Prosper all of its rights, titles, interests, and benefit in a totaloutstanding amount of USD330,000 based on a novation agreement to loanagreement dated 26 April 2018 executed by and among Shanghai Third HarborBenteng Construction and Engineering Co. Ltd, Engineering Prosper and PTPB;

(dd) a sale and purchase of receivables agreement dated 26 April 2018 entered intobetween Shanghai Third Harbor Benteng Construction and Engineering Co. Ltd asthe seller and Engineering Prosper as the purchaser, pursuant to which ShanghaiThird Harbor Benteng Construction and Engineering Co. Ltd agreed to sell andtransfer to Engineering Prosper and Engineering Prosper agreed to purchase allrights, title, interest and participation of Shanghai Third Harbor BentengConstruction and Engineering Co. Ltd in the total outstanding amount ofUSD330,000 based on a novation agreement to loan agreement dated 26 April 2018executed by and among Shanghai Third Harbor Benteng Construction andEngineering Co. Ltd, Engineering Prosper and PTPB;

(ee) the Capital Injection Agreement;

(ff) a subscription agreement dated 11 April 2018 entered into between, among others,our Company and Worldlink, pursuant to which Worldlink agreed to subscribe for180,000 new Shares representing 9% of the total issued share capital of ourCompany as enlarged by the subscription, at a total subscription price ofUS$9,584,744.54 (equivalent to approximately RMB60,000,000);

(gg) the Business and Asset Transfer Agreements;

(hh) a share transfer agreement dated 1 May 2018 entered into among Shanghai ThirdHarbor Benteng Construction and Engineering Co., Ltd, Worldlink, and Royal Karry,pursuant to which Royal Karry agreed to acquire 98.0072% and 1.9928% of theregistered capital in Shanghai Shanyu from Shanghai Third Harbor BentengConstruction and Engineering Co., Ltd and Worldlink, respectively;

(ii) a supplemental agreement dated 6 July 2018 entered into between Third HarborConstruction and Third Harbor Maritime in relation to the business and relevantasset restructuring agreement in respect of marine engineering (關於海洋工程業務及相關資產之重組協議書) dated 30 November 2017, pursuant to which certain contractassets and trade receivables and trade payables of Third Harbor Construction weretransferred from Third Harbor Construction to Third Harbor Maritime at aconsideration of RMB155,005,439, effective retroactively as at the date of 1December 2017;

(jj) the Deed of Indemnity;

(kk) the Deed of Non-competition; and

(ll) the [REDACTED].


– IV-12 –


2. Our intellectual property rights

(a) Trademarks

As at the Latest Practicable Date, our Group has registered the following trademarkswhich are material to our business:

Trademark

Place of

registration

Name of

registrant

Trademark

number Class Expiry date

Hong Kong Third Harbor

Maritime

304391181 37, 39 7 January

2028

Hong Kong Third Harbor

Maritime

304542390 37, 39 27 May 2028

As at the Latest Practicable Date, our Group was in the course of applying for theregistration of the following trademarks which we consider to be or may be material to ourbusiness:

Trademark

Place of

registration

Name of

registrant

Trademark

number Class

Application

date

The PRC Third Harbor

Maritime

27810572 6 30 November

2017


Maritime

27810592 7 30 November

2017


Maritime

27815025 12 30 November

2017


Maritime

27806093 19 30 November

2017


Maritime

27813299 35 30 November

2017


Maritime

27801773 37 30 November

2017


Maritime

27818018 39 30 November

2017


Maritime

27818031 42 30 November

2017


– IV-13 –


(b) Patents

As at the Latest Practicable Date, our Group was the registered proprietor of thefollowing patents in the PRC which we consider to be or may be material to our business:

Description of thepatent Patent no.

Patentholder

Applicationdate Expiry date

Buoyancy flood gate(浮力防汛閘門)

2010201448173 ThirdHarborMaritime

30 March2010

29 March2020

Flood wall withmovable sluicegates (活動式剛閘板防汛牆)


10December2009

9 December2019

Sealing structure forflood wall (用於防汛牆體的密封結構)


26 July2010

25 July2020

Temporary retainingcofferdam forrepairing flood wall(用於搶修防汛牆的臨時擋水圍堰)


25 January2011

24 January2021

(c) Domain name

As at the Latest Practicable Date, our Group was the registered proprietor of thefollowing domain name which we consider to be or may be material to our business:

Domain nameName of registeredproprietor

Date ofregistration

Expirydate

shbt-china.com Third Harbor Maritime 5 July 2010 5 July 2020

Save as disclosed above, we have no other trade or service marks, patents, otherintellectual or industrial property rights which we consider to be or may be material to ourbusiness.

C. DISCLOSURE OF INTERESTS

1. Disclosure of interests

(a) Interests and/or short positions of our Directors and chief executive in theShares, underlying shares or debentures of our Company and its associatedcorporations following the completion of the [REDACTED] and the[REDACTED]

Immediately following completion of the [REDACTED] and the [REDACTED](assuming the [REDACTED] is not exercised and without taking into account any Shareswhich may be issued pursuant to the exercise of any options which may be granted under


– IV-14 –


the Share Option Scheme), the interests and/or short positions of our Directors and chiefexecutive of our Company in the equity or debt securities of our Company or anyassociated corporations (within the meaning of Part XV of the SFO) which will have to benotified to our Company and the Stock Exchange under Divisions 7 and 8 of Part XV of theSFO (including interests and/or short positions which they are taken or deemed to haveunder such provisions of the SFO), or which will be required, under section 352 of theSFO, to be entered in the register referred to in that section, or under the Model Code forSecurities Transactions by Directors of Listed Issuers contained in the Listing Rules, tobe notified to our Company and the Stock Exchange, in each case, once the Shares are[REDACTED] will be as follows:

Interests in the Shares

Name of Director/chief executive

Capacity/Natureof Interest

Number of Sharesheld immediately

following thecompletion of the

[REDACTED] and the[REDACTED](1)

(approximately)

Percentage ofshareholding in

our Companyimmediately


[REDACTED] and the[REDACTED](1)

(approximately)

Mr. Wang Shizhong(王士忠)(3)

Interest in a controlledcorporation; interestheld jointly with anotherperson

[REDACTED] [REDACTED]

Mr. Wang Xiuchun(王秀春)(3)

Interest in a controlledcorporation; interestheld jointly with anotherperson


Ms. Olive Chen(4) Interest in a controlledcorporation


Notes:

1. All interests stated are long positions.

2. The calculation is based on the total number of [REDACTED] Shares in issue immediatelyfollowing the completion of the [REDACTED] and the [REDACTED] (assuming the [REDACTED]is not exercised and without taking into account any Shares which may be issued pursuant to theexercise of any options which may be granted under the Share Option Scheme).

3. HuaZi Holding is beneficially and wholly owned by Mr. Wang. By virtue of the SFO, Mr. Wang isdeemed to be interested in the [REDACTED] Shares to be held by HuaZi Holding.

Ye Wang Zhou Holding which will hold [REDACTED] Shares immediately following the completionof the [REDACTED] and the [REDACTED], is owned as to 46.76%, 32.40%, 8.10%, 7.34% and5.40% by Mr. Ye Kangshun (葉康舜), Mr. Wang Xiuchun (王秀春), Ms. Zhou Meng (周萌), Mr. WangShiqin (王士勤) and Mr. Wang Likai (王利凱), respectively. By virtue of the Acting-in-concertConfirmation, Mr. Wang and Mr. Wang Xiuchun (王秀春) are deemed to be interested in eachother’s interest in the Shares.


– IV-15 –


4. Worldlink is beneficially and wholly owned by Ms. Olive Chen. By virtue of the SFO, Ms. OliveChen is deemed to be interested in the [REDACTED] Shares to be held by Worldlink.

5. Please refer to the chart regarding the shareholding structure of our Group upon completion of the[REDACTED] and the [REDACTED] in the section headed “History, Reorganisation andCorporate Structure” in this document for details of the shareholding of each of the Directorsmentioned above.

(b) Interests discloseable under the SFO and substantial shareholders of othermembers of our Group

(i) Interest in our Company

Save as disclosed in the section headed “Substantial Shareholders” in thisdocument, our Directors are not aware of any other person, not being a Director orchief executive of our Company, who will have an interest or short position in ourShares which would fall to be disclosed to our Company and the Stock Exchangeunder the provisions of Divisions 2 and 3 of Part XV of the SFO, or who will be,directly or indirectly, interested in 10% or more of the nominal value of any class ofshare capital carrying rights to vote in all circumstances at general meetings of ourCompany.

(ii) Interest in other members of our Group

So far as it is known to our Directors, the following persons, not being a Directoror chief executive of our Company, will be interested in 10% or more of the nominalvalue of any class of share capital or shares carrying rights to vote in allcircumstances at general meetings of any other member of our Group:

Name of shareholder

Name of othermember ofour Group

Capacity/natureof interest

Number ofthe underlying

shares heldimmediately


[REDACTED]and the

[REDACTED](1)

Percentage ofthe underlying

shareholdingheld immediately

following thecompletion of the[REDACTED] andthe [REDACTED]

PTPB BentengIndonesia

Other (ContractualArrangements)

330,000 33%(2)

Notes:

1. All interests stated are long position.

2. To consolidate control over and derive the economic benefits from the 33% equity interest inBenteng Indonesia, we have entered into Contractual Arrangements with PTPB. For furtherdetails, please refer to the section headed “Trust and Contractual Arrangements – OurContractual Arrangements for Benteng Indonesia” in this document.


– IV-16 –


D. FURTHER INFORMATION ABOUT OUR DIRECTORS

1. Directors’ service contracts

Each of our Directors has entered into a service contract or an appointment letter (as thecase may be) with our Company for an initial fixed term of three years commencing on the[REDACTED] which may only be terminated in accordance with the provisions of the servicecontract or the appointment letter (as the case may be) or by (i) our Company giving to anyDirector not less than three months’ prior notice in writing or (ii) by any Director giving to ourCompany not less than one month’s prior notice in writing.

Each of our Directors is entitled to the respective basic salary under their respectiveservice contracts or appointment letters set out below. Our Directors may also be entitled to adiscretionary bonus. A Director may not vote on any resolution of our Directors regarding theincrement of annual salary and the amount of the discretionary bonus payable to him or her.

Save as disclosed in this document, none of our Directors has or is proposed to have aservice contract or an appointment letter (as the case may be) with our Company or any of itssubsidiaries (excluding contracts expiring or determinable by the employer within one yearwithout the payment of compensation (other than statutory compensation)).

Our Company has not entered into any service contract with our Directors which is for aduration that may exceed three years or which is not determinable by our Company within oneyear without payment of compensation (other than statutory compensation).

2. Directors’ remuneration during the Track Record Period

The aggregate amount of remuneration our Directors received (including fees, salaries,contributions to pension schemes and discretionary bonuses) from our Group for the threeyears ended 31 December 2015, 2016 and 2017, and the four months ended 30 April 2018,was approximately RMB0.3 million, RMB0.3 million, RMB0.3 million and RMB0.1 million,respectively.

No other emoluments have been paid or are payable in respect of the three years ended31 December 2015, 2016 and 2017, and the four months ended 30 April 2018, by our Groupto our Directors.

Under the arrangements currently in force, the aggregate amount of remuneration,excluding discretionary bonuses and share-based compensation paid and payable to ourDirectors for the year ending 31 December 2018 is estimated to be approximately RMB2.3million.

None of our Directors or any past directors of any member of our Group has been paid anysum of money for the three years ended 31 December 2015, 2016 and 2017, and the fourmonths ended 30 April 2018, (i) as an inducement to join or upon joining our Company or (ii)for loss of office as a director of any member of our Group or of any other office in connectionwith the management of the affairs of any member of our Group.


– IV-17 –


There has been no arrangement under which a Director has waived or agreed to waive

any emoluments for the three years ended 31 December 2015, 2016 and 2017 and the four

months ended 30 April 2018.

E. SHARE OPTION SCHEME

The following is a summary of the principal terms of the Share Option Scheme

conditionally approved and adopted in compliance with Chapter 17 of the Listing Rules by the

written resolutions of the Shareholders on [REDACTED]. The following summary does not

form, nor is intended to be, part of the Share Option Scheme nor should it be taken as affecting

the interpretation of the rules of the Share Option Scheme.

1. Purpose

The purpose of the Share Option Scheme is to motivate Eligible Persons (as set out in

paragraph 2 below) to optimise their future contributions to our Group and/or to reward them

for their past contributions, to attract and retain or otherwise maintain on-going relationships

with Eligible Persons who are significant to and/or whose contributions are or will be beneficial

to the performance, growth or success of our Group, and additionally in the case of Executives

(as defined in paragraph 2 below), to enable our Group to attract and retain individuals with

experience and ability and/or to reward them for their past contributions.

2. Eligible Persons

Persons Our Board may, at its sole discretion, invite any director or proposed director

(including an independent non-executive director) of any member of our Group, any executive

director of, manager of, or other employee holding an executive, managerial, supervisory or

similar position in, any member of our Group (an “Employee”), any proposed Employee, any

full-time or part-time Employee, or a person for the time being seconded to work full-time or

part-time for any member of our Group (an “Executive”), a consultant, business or joint

venture partner, franchisee, contractor, agent or representative of any member of our Group,

a person or entity that provides research, development or other technological support or any

advisory, consultancy, professional or other services to any member of our Group, or a close

associate of any of the foregoing persons (together, the “Eligible Persons” and each an

“Eligible Person”).

3. Conditions and administration

The Share Option Scheme shall come into effect on the [REDACTED], subject to:

(a) the Stock Exchange granting approval for the [REDACTED] of and permission to

deal in the Shares to be issued and allotted pursuant to the exercise of the Share

Options; and

(b) the commencement of dealings in the Shares on the Main Board.


– IV-18 –


The Share Option Scheme shall be subject to the administration of our Board whosedecision on all matters arising in relation to the Share Option Scheme or its interpretation oreffect shall (except as otherwise provided in the rules of the Share Option Scheme) be finaland binding on all parties thereto. Our Board may delegate any or all of its powers in relationto the Share Option Scheme to any of its committees.

4. Determination of eligibility

(a) Our Board may, at its absolute discretion, offer to grant to any Eligible Person aShare Option to subscribe for Shares under the Share Option Scheme.

(b) The basis of eligibility of any Eligible Person to the grant of any Share Option shallbe determined by our Directors from time to time on the basis of their contributionsto the development and growth of our Group.

(c) For the avoidance of doubt, the grant of any options by our Company for thesubscription of Shares to any person who falls within the definition of EligiblePersons shall not, by itself, unless our Directors otherwise determine, be construedas a grant of Share Options under the Share Option Scheme.

(d) An Eligible Person or grantee shall provide our Board with such information andsupporting evidence as the Board may in its absolute discretion request from time totime (including, without limitation, before the offer of a grant of Share Option, at thetime of acceptance of a grant of Share Option, and at the time of exercise of a ShareOption) for the purpose of assessing and/or determining his eligibility or continuingeligibility as an Eligible Person and/or grantee or that of his close associates or forpurposes in connection with the terms of a Share Option (and the exercise thereof)or the Share Option Scheme and the administration thereof.

5. Duration

The Share Option Scheme shall be valid and effective for a period of 10 yearscommencing on the [REDACTED]. However, our Shareholders in general meeting may byresolution at any time terminate the Share Option Scheme. Upon the expiry or termination ofthe Share Option Scheme as aforesaid, no further Share Option shall be [REDACTED] but inall other respects the provisions of the Share Option Scheme shall remain in full force andeffect. All Share Options granted prior to such expiry or termination (as the case may be) andnot then exercised shall continue to be valid and exercisable subject to and in accordance withthe terms of the Share Option Scheme.

6. Grant of Share Options

On and subject to the terms of the Share Option Scheme, our Board shall be entitled atany time within the period of the Share Option Scheme to offer the grant of any Share Optionto any Eligible Person as our Board may in its absolute discretion select, and on acceptanceof the offer, grant such part of the Share Option as accepted to the Eligible Person.


– IV-19 –


Subject to the provisions of the Share Option Scheme, our Board may in its absolute

discretion when offering the grant of a Share Option impose any conditions, restrictions or

limitations in relation thereto in addition to those set out in the Share Option Scheme as our

Board may think fit (to be stated in the letter containing the offer of the grant of the Share

Option) including (without prejudice to the generality of the foregoing) continuing eligibility

criteria, conditions, restrictions or limitations relating to the achievement of performance,

operating or financial targets by our Company and/or the grantee, the satisfactory

performance or maintenance by the grantee of certain conditions or obligations or the time or

period when the right to exercise the Share Option in respect of all or some of the Shares which

the Share Option relates shall vest.

An offer of the grant of a Share Option shall be deemed to have been accepted when the

duplicate letter comprising acceptance of the Share Option duly signed by the grantee

together with a remittance in favour of our Company of HK$1.00 by way of consideration for the

grant thereof is received by our Company within the period specified in the letter containing the

offer of the grant of the Share Option. Once such acceptance is made, the Share Option shall

be deemed to have been granted and to have taken effect from the offer date.

7. Subscription price of Shares

The subscription price in respect of any particular Share Option shall be such price as our

Board may in its absolute discretion determine at the time of grant of the relevant Share Option

(and shall be stated in the letter containing the offer of the grant of the Share Option) but the

subscription price shall not be less than whichever is the highest of:

(a) the nominal value of Share;

(b) the closing price of Shares as stated in the Stock Exchange’s daily quotations sheet

on the offer date; and

(c) the average of the closing prices of Shares as stated in the Stock Exchange’s daily

quotations sheet for the five Business Days immediately preceding the offer date.

The subscription price shall also be subject to adjustment in accordance with paragraph

13 of this section.

8. Exercise of Share Options

(a) A Share Option shall be exercised in whole or in part by the grantee according to the

procedures for the exercise of Share Options established by our Company from time

to time. Every exercise of a Share Option must be accompanied by a remittance for

the full amount of the subscription price for the Shares to be issued upon exercise of

such Share Option.


– IV-20 –


(b) A Share Option shall be personal to the grantee and shall not be assignable and no

grantee shall in any way sell, transfer, charge, mortgage, encumber or create any

interest (legal or beneficial) in favour of any third party over or in relation to any

Share Option or purport to do so (save that the grantee may nominate a nominee in

whose name the Shares issued pursuant to the Share Option may be registered).

Any breach of the foregoing shall entitle our Company to cancel, revoke or terminate

any outstanding Share Option or part thereof granted to such grantee without any

compensation.

(c) Subject to paragraph 8(e) and any conditions, restrictions or limitations imposed in

relation to the particular Share Option pursuant to the provisions of paragraphs 6, 10

or 12 and subject as hereinafter provided, a Share Option may be exercised at any

time during the option period, provided that:

(i) if the grantee (being an individual) dies or becomes permanently disabled

before exercising a Share Option (or exercising it in full), he (or his legal

representative(s)) may exercise the Share Option up to the grantee’s

entitlement (to the extent not already exercised) within a period of 12 months

following his death or permanent disability or such longer period as our Board

may determine;

(ii) in the event of the grantee ceasing to be an Executive by reason of his

retirement pursuant to such retirement scheme applicable to our Group at the

relevant time, his Share Option (to the extent not exercised) shall be

exercisable until the expiry of the relevant option period;

(iii) in the event of the grantee ceasing to be an Executive by reason of his transfer

of employment to an affiliate company of our Company, his Share Option (to the

extent not exercised) shall be exercisable until the expiry of the relevant option

period unless our Board in its absolute discretion otherwise determines in which

event the Share Option (or such remaining part thereof) shall be exercisable

within such period as our Board has determined;

(iv) in the event of the grantee ceasing to be an Executive by reason of transfer of

employment to an affiliate company, the Share Option (to the extent not

exercised) shall be exercisable until the expiry of the relevant option period

unless our Board in its absolute discretion otherwise determines in which event

the Share Option (or such remaining part thereof) shall be exercisable within

such period as our Board may determine;

(v) in the event of the grantee ceasing to be an Executive by reason of the

termination of his employment by resignation or culpable termination, the Share

Option (to the extent not already exercised) shall lapse on the date on which the

notice of termination is served (in the case of resignation) or the date on which

the grantee is notified of the termination of his employment (in the case of


– IV-21 –


culpable termination) and not be exercisable unless our Board otherwise

determines in which event the Share Option (or such remaining part thereof)

shall be exercisable within such period as our Board may in its absolute

discretion determine following the date of such service or notification. A

resolution of our Board resolving that the Executive’s Share Option has lapsed

pursuant to this subparagraph shall be final and conclusive;

(vi) if a grantee being an executive Director ceases to be an Executive but remains

a non-executive Director, his Share Option (to the extent not already exercised)

shall be exercisable until the expiry of the relevant option period unless our

Board in its absolute discretion otherwise determines in which event the Share

Option (or such remaining part thereof) shall be exercisable within such period

as the Board has determined, the Share Option (to the extent not already

exercised) shall lapse on the date of cessation of such appointment and not be

exercisable unless our Board otherwise determines in which event the Share

Option (or such remaining part thereof) shall be exercisable within such period

as our Board may in its absolute discretion determine following the date of such

cessation;

(vii) if (1) our Board in its absolute discretion at any time determines that a grantee

has ceased to be an Eligible Person; or (2) a grantee has failed to or no longer

satisfies or complies with such criteria or terms and conditions that may be

attached to the grant of the Share Option or which were the basis on which the

Share Option was granted, the Share Option (to the extent not already

exercised) shall lapse on the date on which the grantee is notified thereof (in the

case of (1)) or on the date on which the grantee has failed to or no longer

satisfies or complies with such criteria or terms and conditions as aforesaid (in

the case of (2)) and not be exercisable unless our Board otherwise determines

in which event the Share Option (or such remaining part thereof) shall be

exercisable within such period as our Board may in its absolute discretion

determine following the date of such notification or the date of such failure/non-

satisfaction/non-compliance. In the case of (1), a resolution of our Board

resolving that the grantee’s Share Option has lapsed pursuant to this sub-

paragraph shall be final and conclusive;

(viii) if a grantee (being a corporation) (1) has a liquidator, provisional liquidator,

receiver or any person carrying out any similar functions appointed anywhere in

the world in respect of the whole or any part of the assets or undertaking of the

grantee; or (2) has suspended or ceased or threatened to suspend or cease

business; or (3) is unable to pay its debts (within the meaning of section 178 of

the Companies (Winding Up and Miscellaneous Provisions) Ordinance or any

similar provisions under the Cayman Companies Law or any applicable law); or

(4) otherwise becomes insolvent; or (5) suffers a change in its constitution,

directors, shareholding or management which in the opinion of our Board is

material; or (6) commits a breach of any contract entered into between the


– IV-22 –


grantee or his associate and any member of our Group, the option (to the extentnot already exercised) shall lapse on the date of appointment of the liquidatoror receiver or other similar person or on the date of suspension or cessation ofbusiness or on the date when the grantee is deemed to be unable to pay itsdebts as aforesaid or on the date of notification by our Company that the saidchange in constitution, directors, shareholding or management is material or onthe date of the said breach of contract (as the case may be) and not beexercisable unless our Board otherwise determines in which event the ShareOption (or such remaining part thereof) shall be exercisable within such periodas our Board may in its absolute discretion determine following the date of suchoccurrence. A resolution of our Board resolving that the grantee’s Share Optionhas lapsed pursuant to this sub-paragraph by reason of a breach of contract asaforesaid shall be final and conclusive;

(ix) if a grantee (being an individual) (1) is unable or has no reasonable prospect ofbeing able to pay his debts within the meaning of the Bankruptcy Ordinance orany other applicable laws or has otherwise become insolvent; or (2) has madeany arrangements or compositions with his creditors generally; or (3) has beenconvicted of any criminal offences involving his integrity or honesty; or (4)commits a breach of any contracts entered into between the grantee or hisassociate and any member of our Group, the Share Option (to the extent notalready exercised) shall lapse on the date on which he is deemed unable or tohave no reasonable prospects of being able to pay his debts as aforesaid or onthe date on which a petition for bankruptcy has been presented in anyjurisdiction or on the date on which he enters into the said arrangement orcomposition with his creditors or on the date of his conviction or on the date ofthe said breach of contract (as the case may be) and not be exercisable unlessour Board otherwise determines in which event the Share Option (or suchremaining part thereof) shall be exercisable within such period as our Boardmay in its absolute discretion determine following the date of such occurrence.A resolution of our Board resolving that the grantee’s Share Option has lapsedpursuant to this sub-paragraph by reason of a breach of contract as aforesaidshall be final and conclusive;

(x) if a general offer (whether by way of takeover offer or scheme of arrangementor otherwise in like manner) is made to all the holders of Shares (or all suchholders other than the offeror and/or any person controlled by the offeror and/orany person acting in association or concert with the offeror) and such offerbecomes or is declared unconditional (in the case of a takeover offer) or isapproved by the requisite majorities at the relevant meetings of theShareholders (in the case of a scheme of arrangement), the grantee shall beentitled to exercise the Share Option (to the extent not already exercised) atany time (in the case of a takeover offer) within one month after the date onwhich the offer becomes or is declared unconditional or (in the case of ascheme of arrangement) prior to such time and date as shall be notified by ourCompany;


– IV-23 –


(xi) in the event of an effective resolution being passed for the voluntary winding-upof our Company, and if the grantee immediately prior to such event had anysubsisting Share Option which had not been fully exercised, the grantee may bynotice in writing to our Company within one month after the date of suchresolution elect to be treated as if the Share Option had been exercisedimmediately before the passing of such resolution either to its full extent or tothe extent specified in such notice and shall accordingly be entitled to receiveout of the assets available in the liquidation, pari passu with our Shareholders,such sum as would have been received in respect of the Shares the subject ofsuch election reduced by an amount equal to the subscription price which wouldotherwise have been payable in respect thereof; and

(xii) if a compromise or arrangement between our Company and its members orcreditors is proposed for the purpose of or in connection with a scheme for thereconstruction of our Company or its amalgamation with any other company orcompanies, our Company shall give notice thereof to the grantees who haveunexercised Share Options at the same time as it despatches notices to allmembers or creditors of our Company summoning the meeting to consider sucha compromise or arrangement and thereupon each grantee (or his legalrepresentatives or receiver) may until the expiry of the earlier of: (1) the optionperiod; (2) the period of two months from the date of such notice; and (3) thedate on which such compromise or arrangement is sanctioned by the court,exercise in whole or in part his Share Option. Except insofar as exercised inaccordance with this paragraph 8(c)(xii), all Share Options outstanding at theexpiry of the relevant period referred to in this paragraph 8(c)(xii) shall lapse.Our Company may thereafter require each grantee to transfer or otherwise dealwith the Shares issued on exercise of the Share Option to place the grantee inthe same position as would have been the case had such Shares been thesubject of such compromise or arrangement, provided that in determining theentitlement of any grantee to exercise a Share Option at any particular date, ourBoard may in its absolute discretion relax or waive, in whole or in part,conditionally or unconditionally, any additional conditions, restrictions orlimitations imposed in relation to the particular Share Option pursuant to theprovisions of paragraph 6 and/or deem the right to exercise the Share Option inrespect of the Shares the subject thereof to have been exercisablenotwithstanding that according to the terms of the particular Share Option suchright shall not have then vested.

(d) The Shares to be allotted upon the exercise of a Share Option shall be subject to allthe provisions of our Memorandum and Articles and the laws of the Cayman Islandsin force from time to time and shall rank pari passu in all respects with then existingfully-paid Shares in issue on the allotment date, and accordingly shall entitle theholders to participate in all dividends or other distributions paid or made on or afterthe allotment date, other than any dividends or other distributions previouslydeclared or recommended or resolved to be paid or made if the record date thereforeshall be before the allotment date. Subject as aforesaid, no grantee shall enjoy anyof the rights of a Shareholder by virtue of the grant of a Share Option pursuant to theShare Option Scheme.


– IV-24 –


(e) Our Company is entitled to refuse any exercise of a Share Option if such exercise isnot in accordance with the terms of the Share Option Scheme or the procedures forexercise of Share Option established by our Company from time to time or if suchexercise may cause our Company to contravene or breach any laws, enactments orregulations for the time being in force in Hong Kong and the Cayman Islands or otherjurisdiction where applicable or the Listing Rules or any rules governing the[REDACTED] of the Shares on a stock exchange.

9. Lapse of Share Options

A Share Option shall lapse automatically and not be exercisable (to the extent not alreadyexercised) on the earliest of the occurrence of any of the following events unless otherwiserelaxed or waived (conditionally or unconditionally) by our Company:

(a) the expiry of the option period;

(b) the expiry of any of the periods referred to in paragraph 8(c);

(c) (subject to paragraph 8(c)(xi)) the date of the commencement of the winding-up ofour Company;

(d) there is an unsatisfied judgment, order or award outstanding against the grantee orour Board has reason to believe that the grantee is unable to pay or to have noreasonable prospect of being able to pay his/its debts within the meaning of theBankruptcy Ordinance;

(e) there are circumstances which entitle any person to take any action, appoint anyperson, commence proceedings or obtain any order of the type mentioned inparagraphs 8(c)(viii), 8(c)(ix) or paragraph 9(d); or

(f) a bankruptcy order has been made against any director or shareholder of thegrantee (being a corporation) in any jurisdiction.

No compensation shall be payable upon the lapse of any Share Option, provided that ourBoard shall be entitled in its discretion to pay such compensation to the grantee in suchmanner as it may consider appropriate in any particular case.

10. Maximum number of Shares available for Subscription

The maximum number of Shares to be issued upon exercise of all Share Options whichmay be granted under the Share Option Scheme (and under any other share option schemes)shall not in aggregate exceed 10% of the Shares in issue immediately after completion of the[REDACTED] and as at the [REDACTED] (i.e. not exceeding [REDACTED] Shares) (the“Scheme Mandate Limit”), provided that our Company may at any time as our Board may thinkfit seek approval from our Shareholders to refresh the scheme mandate limit, except that the


– IV-25 –


maximum number of Shares to be issued upon exercise of all Share Options which may begranted under the Share Option Scheme (and under any other share option schemes of ourCompany) shall not exceed 10% of the Shares in issue as at the date of approval by ourShareholders in general meeting where such limit is refreshed. Options previously grantedunder the Share Option Scheme and any other share option schemes (including thoseoutstanding, cancelled, and lapsed in accordance with the terms of the Share Option Schemeor any other share option schemes or exercised options under the said schemes of ourCompany) shall not be counted for the purpose of calculating the limit as refreshed. OurCompany shall send a circular containing the information required under Rule 17.02(2)(d) andthe disclaimer required under Rule 17.02(4) of the Listing Rules to our Shareholders. Inaddition, our Company may seek separate approval from our Shareholders in general meetingfor granting Share Options beyond the Scheme Mandate Limit, provided that the ShareOptions in excess of the Scheme Mandate Limit are granted only to the Eligible Personsspecified by our Company before such approval is sought. Our Company shall issue a circularto our Shareholders containing the information required under Rule 17.03(3) of the ListingRules.

Notwithstanding the preceding paragraph, the maximum number of Shares to be issuedupon exercise of all outstanding Share Options granted and yet to be exercised under theShare Option Scheme (and under any other share option schemes of our Company) shall notexceed 30% of the Shares in issue from time to time.

The maximum number of Shares issued and to be issued upon exercise of the ShareOptions granted to any one Eligible Person (including exercised and outstanding ShareOptions) in any 12-month period shall not exceed 1% of the Shares in issue from time to time.Where any further grant of Share Options to such Eligible Person would result in the Sharesissued and to be issued upon exercise of all Share Options granted and which may be grantedto such Eligible Person (including exercised, cancelled and outstanding Share Options) in the12-month period up to and including the date of such further grant representing in aggregateover 1% of the Shares in issue, such further grant shall be separately approved by ourShareholders in general meeting with such Eligible Person and his close associates (or hisassociates if such Eligible Person is a connected person) abstaining from voting. Theapplicable requirements of Rule 17.03(4) of the Listing Rules shall be complied with.

The maximum numbers set out in this paragraph 10 above shall be subject to adjustmentin accordance with paragraph 12 but shall not in any event exceed the limits imposed byChapter 17 of the Listing Rules.

11. Maximum number of Shares per grantee who is a core connected person

Each grant of Share Options to a Director, chief executive or substantial Shareholder ofour Company or any of their respective associates under the Share Option Scheme shall beapproved by independent non-executive Directors (excluding the independent non-executiveDirector who is the proposed grantee of the Share Options). Where any grant of Share Optionsto a substantial Shareholder or an independent non-executive Director or any of theirrespective associates would result in the securities issued and to be issued upon exercise ofall Share Options already granted and which may be granted (including Share Optionsexercised, cancelled and outstanding) to such person in the 12-month period up to andincluding the date of such grant:


– IV-26 –


(a) representing in aggregate over 0.1% of the Shares in issue; and

(b) having an aggregate value, based on the closing price of the Shares at the date ofeach grant, in excess of HK$5 million,

such further grant of Share Options must be approved by our Shareholders. Our Companyshall send a circular to our Shareholders containing the information required under Rule 17.04of the Listing Rules. The relevant Eligible Person, his associates and all core connectedpersons of our Company shall abstain from voting at such general meeting. Any vote taken atthe meeting to approve the grant of such Share Options must be taken on a poll.

12. Cancellation of Share Options

Our Board shall be entitled for the following causes to cancel any Share Option in wholeor in part by giving notice in writing to the grantee stating that such Share Option is therebycancelled with effect from the date specified in such notice (the “Cancellation Date”):

(a) the grantee commits or permits or attempts to commit or permit a breach ofparagraphs 4(d) or 8(b) or any terms or conditions attached to the grant of the ShareOption;

(b) the grantee makes a written request to our Board for, or agrees to, the Share Optionto be cancelled; or

(c) if the grantee has, in the opinion of our Board, conducted himself in any mannerwhatsoever to the detriment of or prejudicial to the interests of our Company or itssubsidiary.

The Share Option shall be deemed to have been cancelled with effect from theCancellation Date in respect of any part of the Share Option which has not been exercised asat the Cancellation Date. No compensation shall be payable upon any such cancellation,provided that our Board shall be entitled in its discretion to pay such compensation to thegrantee in such manner as it may consider appropriate in any particular case. Where ourCompany cancels a Share Option held by a grantee and issues new Share Options to the samegrantee, the issue of such new Share Options may only be made under the Share OptionScheme with available unissued Share Options (excluding the cancelled Share Option) withinthe limit approved by our Shareholders set out in paragraph 10.

13. Reorganisation of capital structure

In the event of any change in the capital structure of our Company while any Share Optionmay become or remains exercisable, whether by way of [REDACTED], rights issue,consolidation, subdivision or reduction of the share capital of our Company, our Board may, ifit considers the same to be appropriate, direct that adjustments be made to:

(a) the number of Shares subject to outstanding Share Options;


– IV-27 –


(b) the subscription price of each outstanding Share Option; and/or

(c) the number of Shares subject to the Share Option Scheme.

Where our Board determines that adjustments are appropriate (other than an adjustment

arising from a [REDACTED]), the auditors or the independent financial advisors (as our Board

may select) shall certify in writing to our Board that any such adjustments to be in their opinion

fair and reasonable and in compliance with Rule 17.03(13) of the Listing Rules (as amended

from time to time) and the notes thereto and the supplementary guidance attached to the letter

from the Stock Exchange dated 5 September 2005 to all issuers relating to share option

schemes, provided that:

(a) the aggregate percentage of the issued share capital of our Company available for

the grant of options shall remain as nearly as possible the same as it was before

such change but shall not be greater than the maximum number prescribed by the

Listing Rules from time to time;

(b) any such adjustments shall be made on the basis that the aggregate subscription

price payable by a grantee on the full exercise of any Share Option shall remain as

nearly as possible the same as (but shall not be greater than) it was before such

event;

(c) no such adjustments shall be made the effect of which would be to enable a Share

to be issued at less than its nominal value; and

(d) any such adjustments shall, as nearly as practicable, be made on the basis that the

proportion of the issued share capital of our Company for which any grantee is

entitled to subscribe pursuant to the options held by him shall remain the same as

(but shall not be greater than) that to which he was previously entitled (as interpreted

in accordance with the supplementary guidance as amended from time to time).

For the avoidance of doubt only, the issue of securities as consideration in a transaction

shall not be regarded as a circumstance requiring an adjustment.

The capacity of the auditors or the independent financial advisors (as the case may be)

in this paragraph 13 is that of experts and not of arbitrators and their certification or

confirmation shall, in the absence of manifest error, be final, conclusive and binding on our

Company and the grantees. The costs of the auditors or the independent financial advisors (as

the case may be) shall be borne by our Company.


– IV-28 –


14. Distributions

Upon distribution by our Company to holders of the Shares of any cash or in specie ofassets (other than dividends in the ordinary course) (the “Distribution”), our Company maymake a downward adjustment to the subscription price of any Share Option granted but notexercised as at the date of such Distribution by an amount which our Board considers asreflecting the impact such Distribution will have or will likely to have on the trading price of theShares provided that (a) our Board’s determination of any adjustments shall be final andbinding on all grantees, (b) the amount of adjustment shall not exceed the amount of suchDistribution to be made to our Shareholders, (c) such adjustment shall take effect on or afterthe date of such Distribution by our Company, (d) any adjustment provided for in thisparagraph 14 shall be cumulative to any other adjustments contemplated under paragraph 13or approved by our Shareholders in general meeting; and (e) the adjusted subscription priceshall not, in any case, be less than the nominal value of the Shares.

15. Share Capital

The exercise of any Share Option shall be subject to our Shareholders in general meetingapproving any necessary increase in the authorised share capital of our Company. Subjectthereto, our Board shall make available sufficient authorised but unissued share capital of ourCompany to meet subsisting requirements on the exercise of Share Options.

16. Disputes

Any dispute arising in connection with the Share Option Scheme (whether as to thenumber of Shares, the subject of a Share Option, the amount of the subscription price orotherwise) shall be referred to the auditors or the independent financial advisors (as the casemay be) for decision, who shall act as experts and not as arbitrators and whose decision shallbe final and binding.

17. Alteration of the Share Option Scheme

The Share Option Scheme may be altered in any respect by a resolution of our Boardexcept that the following shall not be carried out except with the prior sanction of an ordinaryresolution of our Shareholders in general meeting:

(a) any material alteration to its terms and conditions or any change to the terms ofoptions granted (except where the alterations take effect under the existing terms ofthe Share Option Scheme);

(b) any alteration to the provisions of the Share Option Scheme in relation to the mattersset out in Rule 17.03 of the Listing Rules to the advantage of grantees;

(c) any change to the authority of our Directors in relation to any alteration to the termsof the Share Option Scheme; and

(d) any alteration to this paragraph 17,

provided always that the amended terms of the Share Option Scheme shall comply with theapplicable requirements of Chapter 17 of the Listing Rules.


– IV-29 –


18. Termination

Our Shareholders by resolution in general meeting may at any time terminate theoperation of the Share Option Scheme. Upon the expiry or termination of the Share OptionScheme as aforesaid, no further Share Options shall be [REDACTED] but in all other respectsthe provisions of the Share Option Scheme shall remain in full force and effect. All ShareOptions granted prior to such expiry or termination (as the case may be) and not thenexercised shall continue to be valid and exercisable subject to and in accordance with theShare Option Scheme.

F. OTHER INFORMATION

1. Tax and other indemnities

Our Controlling Shareholders entered into the Deed of Indemnity referred to in the

paragraph headed “B. Further Information about our Business – 1. Summary of our material

contracts” in this Appendix in favour of our Company for itself and as trustee for each member

of our Group to provide indemnities on a joint and several basis in respect of, among other

matters, taxation resulting from income, profits or gains earned, accrued or received, estate

duty, as well as any penalties and claims to which any member of our Group may be subject

on or before the [REDACTED] and including those payable after the [REDACTED].

Our Directors have been advised that no material liability for estate duty is likely to fall on

our Company or any of our subsidiaries in the PRC, Hong Kong, Brunei or Indonesia, being

jurisdictions in which one or more of the companies comprising our Group were established or

incorporated.

2. Litigation

As at the Latest Practicable Date, we were not involved in any litigation, arbitration or

administrative proceedings of material importance. So far as the Directors are aware, no

litigation, arbitration or administrative proceedings of material importance are pending or

threatened against any member of our Group.

3. Sole Sponsor

The Sole Sponsor has made an application on our behalf to the [REDACTED] for the

[REDACTED], and permission to deal in, the Shares in issue and to be issued as mentioned

in this document.

The Sole Sponsor satisfies the independence criteria applicable to sponsors as set out in

Rule 3A.07 of the Listing Rules.

The Sole Sponsor’s fees are RMB5 million and are payable by our Company.


– IV-30 –


4. Compliance adviser

In accordance with the requirements of the Listing Rules, our Company has appointedOrient Capital (Hong Kong) Limited as its compliance adviser to provide advisory services toour Company to ensure compliance with the Listing Rules for a period commencing on the[REDACTED] and ending on the date on which our Company complies with Rule 13.46 of theListing Rules in respect of its financial results for the first full year commencing after the[REDACTED] or until the agreement is terminated, whichever is the earlier.

5. Preliminary expenses

Our estimated preliminary expenses are approximately HK$15,000 and are payable byour Company.

6. Promoters

Our Company has no promoter for the purposes of the Listing Rules. Within the two yearsimmediately preceding the date of this document, no cash, securities or other benefit has beenpaid, allotted or given nor are any proposed to be paid, allotted or given to any promoters inconnection with the [REDACTED] and the related transactions described in this document.

7. Taxation of holders of Shares

(a) Hong Kong

Dealings in Shares registered on our Company’s Hong Kong branch register ofmembers will be subject to Hong Kong stamp duty.

Profits from dealings in Shares arising in or derived from Hong Kong may also besubject to Hong Kong profits tax.

(b) The Cayman Islands

Under the Cayman Islands law currently in force, no stamp duty is payable in theCayman Islands on transfers and other dispositions (if any) of our Shares except anytransfer of shares of a company that holds interests in land in the Cayman Islands.

(c) Consultation with professional advisers

Intending holders of our Shares are recommended to consult their professionaladvisers if they are in doubt as to the taxation implications of subscribing for, purchasing,holding or disposing of or dealing in our Shares. It is emphasised that none of ourCompany, our Directors or the other parties involved in the [REDACTED] can acceptresponsibility for any tax effect on, or liabilities of, holders of Shares resulting from theirsubscription for, purchase, holding or disposal of or dealing in Shares or exercise of anyrights attaching to them.


– IV-31 –


8. Qualification of experts

The qualifications of the experts, as defined under the Listing Rules, who have given

reports, letter, advice or opinions (as the case may be) in this document are as follows:

Name Qualification

Orient Capital (Hong Kong) Limited Licenced corporation under the SFO

permitted to carry out type 6 (advising

on corporate finance) regulated activity

PricewaterhouseCoopers Certified Public Accountants

Allbright Law Offices Qualified PRC lawyer

Harney Westwood & Riegels Cayman Islands attorneys-at-law

Hutabarat Halim & Rekan Indonesia attorneys-at-law

Ridzlan Lim Advocates & Solicitors Brunei attorneys-at-law

Russell Bedford Hong Kong Tax adviser

Frost & Sullivan (Beijing) Inc., Shanghai

Branch Co.

Industry consultant

9. Consents of experts

Each of experts named in paragraph 8 of this Appendix has given and has not withdrawn

their respective written consents to the issue of this document with the inclusion of their

reports, letters, advice, opinions or summaries of opinions (as the case may be) and/or

references to their names included in this document in the form and context in which they

respectively appear.

10. Miscellaneous

Save as disclosed in this document:

(a) none of our Directors nor any of the parties listed in the paragraph headed “F. Other

Information – 9. Consents of experts” in this appendix has any direct or indirect

interest in the promotion of our Company or any of the subsidiaries, or in any assets

which have, within the two years immediately preceding the issue of this document,

been acquired or disposed of by or leased to our Company or any of the subsidiaries,

or are proposed to be acquired or disposed of by or leased to our Company or any

of the subsidiaries;


– IV-32 –


(b) none of our Directors nor any of the parties listed in the paragraph headed “F. Other

Information – 9. Consents of experts” in this appendix is materially interested in any

contract or arrangement subsisting at the date of this document which is significant

in relation to the business;

(c) save of the [REDACTED], none of the parties listed in the paragraph headed “F.

Other Information – 9. Consents of experts” in this appendix:

(i) is interested legally or beneficially in any of the Shares or any shares in any of

the subsidiaries; or

(ii) has any right or option (whether legally enforceable or not) to subscribe for or

to nominate persons to subscribe for the securities;

(d) none of the equity and debt securities of our Company or any of our subsidiaries is

listed or dealt with in any other stock exchange, or being traded on any trading

system, nor is any [REDACTED] or permission to deal being or proposed to be

sought from any other stock exchange;

(e) no share or loan or share or loan capital of our Company or any of our subsidiaries

is under option or is agreed conditionally or unconditionally to be put under option;

(f) our Company has not issued or agreed to issue any founder shares, management

shares or deferred shares;

(g) our Company has no outstanding convertible debt securities or debentures;

(h) within the two years preceding the date of this document, no share or loan or share

or loan capital of our Company or any of our subsidiaries has been issued, agreed to

be issued or is proposed to be issued fully or partly paid either for cash or for a

consideration other than cash;

(i) within the two years preceding the date of this document, no commissions,

discounts, brokerages or other special terms have been granted in connection with

the issue or sale of any share or loan or share or loan capital of the Company or any

of its subsidiaries;

(j) within the two years preceding the date of this document, no commission has been

paid or payable (except commissions to the [REDACTED]) for subscription,

agreeing to subscribe, procuring, subscription or agreeing to procure subscription of

any Shares in or debentures of our Company;

(k) since 30 April 2018 (being the date to which the latest audited combined financial

statements of our Group were made up), there has been no material adverse change

in the financial or trading position of our Group;


– IV-33 –


(l) there is no arrangement under which future dividends are waived or agreed to be

waived;

(m) the [REDACTED] does not involve the exercise of any right of pre-emption or the

transfer of subscription rights;

(n) as at the date of this document, there is no restriction affecting the remittance of

profits or repatriation of capital of our Company into Hong Kong from outside Hong

Kong;

(o) there has not been any interruption in the business of our Company which may have

or has had a significant effect on the financial position of our Company in the twelve

months preceding the date of this document; and

(p) the English text of this document shall prevail over the Chinese text.

11. Binding effect

This document shall have the effect, if an application is made in pursuant hereof, of

rendering all persons concerned bound by all the provisions (other than the penal provisions)

of sections 44A and 44B of the Companies (Winding Up and Miscellaneous Provisions)

Ordinance so far as applicable.

12. Bilingual document

The English language and Chinese language versions of this document are being

published separately in reliance upon the exemption provided by Section 4 of the Companies

(Exemption of Companies and Prospectuses from Compliance with Provisions) Notice

(Chapter 32L of the Laws of Hong Kong).


– IV-34 –


DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIES

The documents attached to the copy of this document delivered to the Registrar ofCompanies in Hong Kong for registration were:

(a) a copy of each of the [REDACTED];

(b) the written consents referred to in the section headed “Statutory and GeneralInformation – F. Other Information – 9. Consents of Experts” in Appendix IV to thisdocument; and

(c) a copy of each of the material contracts referred to in the section headed “Statutoryand General Information – B. Further Information about our business – 1. Summaryof our material contracts” in Appendix IV to this document.

DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection at the office ofEversheds Sutherland at 21/F, Gloucester Tower, The Landmark, 15 Queen’s Road Central,Hong Kong during normal business hours up to and including the date which is 14 days fromthe date of this document:

(a) the amended and restated Memorandum and Articles of Association;

(b) the Accountant’s Report from PricewaterhouseCoopers, in respect of the historicalfinancial information for the years ended 31 December 2015, 2016 and 2017 and thefour months ended 30 April 2018, the text of which is set out in Appendix I to thisdocument;

(c) the report on the unaudited pro forma financial information of our Group fromPricewaterhouseCoopers, the text of which is set out in Appendix II to this document;

(d) the audited combined financial statements of our Group for the years ended 31December 2015, 2016 and 2017 and the four months ended 30 April 2018;

(e) the letter of advice issued by Harney Westwood & Riegels summarising certainaspects of the Cayman Companies Law referred to the section headed “Summary ofthe Constitution of Our Company and Cayman Islands Company Law” in Appendix IIIto this document;

(f) the legal opinion issued by the PRC Legal Advisers in respect of general matters andbusiness operations of our Group in the PRC;

(g) the legal opinion issued by the Brunei Legal Advisers in respect of certain areas ofBrunei law;

APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIESIN HONG KONG AND AVAILABLE FOR INSPECTION

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(h) the legal opinion issued by the Indonesian Legal Advisers in respect of certain areas

of Indonesian law;

(i) the industry report prepared by Frost & Sullivan;

(j) the tax report issued by Russell Bedford Hong Kong in respect of the tax affairs of

Benteng Indonesia in Indonesia and Benteng Brunei in Brunei;

(k) the Cayman Companies Law;

(l) the material contracts referred to in the section headed “Statutory and General

Information – B. Further Information about our business – 1. Summary of our

material contracts” in Appendix IV to this document;

(m) service contracts and letters of appointment referred to in the section headed

“Statutory and General Information – D. Further Information about our Directors – 1.

Directors’ service contracts” in Appendix IV to this document;

(n) the written consents referred to in the section headed “Statutory and General

Information – F. Other Information – 9. Consents of experts” in Appendix IV to this

document; and

(o) the Share Option Scheme.

APPENDIX V DOCUMENTS DELIVERED TO THE REGISTRAR OF COMPANIESIN HONG KONG AND AVAILABLE FOR INSPECTION

– V-2 –


華滋國際海洋工程有限公司 Watts International ... - HKEXnews

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