Angang Steel : CONNECTED TRANSACTION - CAPITAL INCREASE AGREEMENT

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(Stock Code: 0347)

CONNECTED TRANSACTION

CAPITAL INCREASE AGREEMENT

BACKGROUND

On 12 April 2021, the Company entered into the Capital Increase Agreement with Angang Engineering and Angang Energy to increase the registered capital of Angang Energy from RMB50 million to RMB150 million on pro rata basis in order to launch the LNG + H2 Project, pursuant to which the Company agreed to contribute the sum of RMB60 million, by way of cash, into the equity capital of Angang Energy. The Company and Angang Engineering currently each holds 60% and 40% of the equity interest in Angang Energy, respectively. Upon completion of the increase in capital contribution, the Company and Angang Engineering will continue to hold 60% and 40% of the equity interest in Angang Energy, respectively, and Angang Energy will remain as a non wholly-owned subsidiary of the Company.

IMPLICATIONS OF THE LISTING RULES

Angang Energy is 60% owned by the Company and 40% owned by Angang Engineering, a wholly-owned subsidiary of the ultimate controlling Shareholder. Accordingly, each of Angang Engineering and Angang Energy is a connected person of the Company and the entering into of the Capital Increase Agreement constitutes connected transactions of the Company under Chapter 14A of the Listing Rules.

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As one or more of the applicable percentage ratios (as defined under the Listing Rules) in respect of the capital contribution by the Company to Angang Energy exceeds 0.1% but is less than 5%, the capital contribution by the Company to Angang Energy is only subject to the reporting and announcement requirements, but is exempt from the circular (including independent financial advice) and the independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

The capital contribution by Angang Engineering to Angang Energy (being the Company's subsidiary) is exempt from the reporting, announcement and independent shareholders' approval requirement under Rule 14A.92(1) of the Listing Rules on the basis that Angang Engineering's capital contribution will be made in proportion to its equity interest in Angang Energy.

BACKGROUND

On 12 April 2021, the Company entered into the Capital Increase Agreement with Angang Engineering and Angang Energy to increase the registered capital of Angang Energy from RMB50 million to RMB150 million on pro rata basis in order to launch the LNG + H2 Project, pursuant to which the Company agreed to contribute the sum of RMB60 million, by way of cash, into the equity capital of Angang Energy. The Company and Angang Engineering currently each holds 60% and 40% of the equity interest in Angang Energy, respectively. Upon completion of the increase in capital contribution, the Company and Angang Engineering will continue to hold 60% and 40% of the equity interest in Angang Energy, respectively, and Angang Energy will remain as a non wholly-owned subsidiary of the Company.

The RMB60 million cash consideration (the "Cash Consideration") will be contributed by the Company through its internal resources, and was determined between the parties on an arm's length basis by taking into account the overall capital needs for the LNG + H2 Project in light of the total investment amount, the registered capital of the joint venture to be formed for the LNG + H2 Project and a feasibility study.

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THE CAPITAL INCREASE AGREEMENT

Set out below is a summary of the principal terms of the Capital Increase Agreement:

Date:	12 April 2021
Parties:	(i) The Company;
	(ii) Angang Engineering; and
	(iii) Angang Energy
Capital Contribution:	The registered capital of Angang Energy will be
	increased from RMB50 million to RMB150 million. As
	the Company currently holds 60% of the equity interest
	in Angang Energy, it will subscribe for RMB60 million
	of the increased equity interest of Angang Energy.
	Angang Engineering will subscribe for RMB40 million
	of the increased equity interest of Angang Energy.
	The total capital increase of RMB100 million will
	be used entirely as the registered capital of the joint
	venture to be formed for the LNG + H2 Project.

The table below sets out the shareholding structure of Angang Energy immediately before and after the completion of the Capital Increase Agreement:

						Percentage of
		Amount of	Amount of	Equity
		Registered	Registered	Interest
		Capital	Capital	(before and
		(before the	(after the	after the
Name of Shareholder	increase)	increase)	increase)
		(RMB million)	(RMB million)	(%)
Company	30		90	60
Angang Engineering	20	60	40
Total
50		150	100

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Payment

The Cash Consideration shall be paid by the Company to Angang Energy in one lump sum within 30 days following the entering into of the relevant commercial agreements necessary to carry out the LNG + H2 Project, including the land lease agreements, coke-oven gas and converter gas supply agreements, utility contracts, etc., and the approval for the LNG + H2 Project by the relevant governmental authorities. To the best knowledge of the Directors having made reasonable enquires, as at the date of this announcement, the aforementioned agreements are still undergoing negotiation process by the relevant parties.

REASONS AND BENEFITS OF ENTERING INTO THE CAPITAL INCREASE AGREEMENT

The Directors believe that the entering into of the Capital Increase Agreement will bring various benefits to the Group. Firstly, the LNG + H2 Project will convert the Company's surplus coke-oven gas into clean fuels such as liquefied natural gas and hydrogen, which will generate good economic benefits. In addition, the LNG + H2 Project will help reduce the Company's NOx emissions from direct combustion of coke oven gas with low calorific value. Moreover, the natural gas converted form coke oven gas can be used to replace high-carbon energy resources, thereby reducing greenhouse emissions. The increase in capital contribution will provide the necessary financial support for the LNG + H2 Project, which is conducive to the smooth implementation of the LNG + H2 Project, thus promoting the development of the green gas energy undertaking of the Company.

Having reviewed the terms of the Capital Increase Agreement, the Directors (including the independent non-executive Directors) are of the view that:

1. the terms of the Capital Increase Agreement are fair and reasonable;
2. the entering into of the Capital Increase Agreement is on normal commercial terms or better and in the ordinary and usual course of business of the Company; and
3. the entering into of the Capital Increase Agreement is in the interest of the Company and its shareholders as a whole.

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GENERAL INFORMATION OF THE PARTIES

The Company

The Company is a major steel manufacturing enterprise in the PRC. It is principally engaged in ferrous metal smelting and steel pressing and processing.

Angang Engineering

Angang Engineering is a limited liability company established in the PRC which is principally engaged in providing construction project management services. It is a wholly-owned subsidiary of Angang Group Company.

Angang Group Company is the ultimate controlling Shareholder. As at the date of this announcement, it indirectly holds approximately 53.33% equity interest of the Company through Angang Holding. Angang Group Company is a company

incorporated in the PRC. It was established by the State-owned Assets Supervision and Administration Commission of the State Council (國務院國有資產監督管理委員會)

(as the representative of the State Council of the PRC) on 28 July 2010.

Angang Holding, a wholly-owned subsidiary of Angang Group Company, is a major enterprise in the iron and steel industry in the PRC and engaged in a wide range of iron and steel-related business activities including steel products, metal wares (exclusive of franchised products), cast iron pipes, metal structure materials, iron wire ropes and relevant products, coking and coking products, cement, electricity generation, metallurgical appliance and equipment and related spare parts and components, electrical machinery, equipment, instruments and apparatus for power transmission, distribution and control, mining and beneficiation of iron ore and manganese ore as well as quarrying of refractory pebble, etc. As at the date of this announcement, it directly holds approximately 53.33% of the equity interest in the Company.

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Angang Energy

Angang Energy is a limited liability company established in the PRC which is principally engaged in the sale and purchase of the liquefied natural gas. The Company and Angang Engineering each holds 60% and 40% of the equity interest in Angang Energy, respectively. As at 31 December 2020, the total assets and net assets of Angang Energy amounted to approximately RMB100.6 million and RMB80.6 million, respectively. The audited financial information of Angang Energy prepared in accordance with the China's Accounting Standards for Business Enterprises for the two years ended 31 December 2020 are as follows:

	Year ended 31 December
	2020	2019
	(RMB million)		(RMB million)
Profit/(Loss) (before tax and extraordinary items)	15.2	8.7
Net Profit/(Loss) (after tax and extraordinary items)	12.9	6.4

IMPLICATIONS OF THE LISTING RULES

Angang Energy is 60% owned by the Company and 40% owned by Angang Engineering, a wholly-owned subsidiary of the ultimate controlling Shareholder. Accordingly, each of Angang Engineering and Angang Energy is a connected person of the Company and the entering into of the Capital Increase Agreement constitutes connected transactions of the Company under Chapter 14A of the Listing Rules.

As one or more of the applicable percentage ratios (as defined under the Listing Rules) in respect of the capital contribution by the Company to Angang Energy exceeds 0.1% but is less than 5%, the capital contribution by the Company to Angang Energy is only subject to the reporting and announcement requirements, but is exempt from the circular (including independent financial advice) and the independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

The capital contribution by Angang Engineering to Angang Energy (being the Company's subsidiary) is exempt from the reporting, announcement and independent shareholders' approval requirement under Rule 14A.92(1) of the Listing Rules on the basis that Angang Engineering's capital contribution will be made in proportion to its equity interest in Angang Energy.

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Mr. Wang Yidong, the chairman of the Company, who is also the deputy general manager of Angang Group Company, is considered to have a material interest in the transactions contemplated under the Capital Increase Agreement due to his senior management positions in Angang Group Company and its subsidiary. Therefore, Mr. Wang Yidong has abstained from voting on the resolutions in relation to the Capital Increase Agreement proposed to the Board.

Save as disclosed above, none of the Directors is deemed to have a material interest in the Capital Increase Agreement and none of them had to abstain from voting in respect of the Capital Increase Agreement at the Board meeting.

DEFINITIONS

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

"Angang Energy"	Angang Energy Technology Co., Ltd.* ( 鞍 鋼 能 源 科
	技 有 限 公 司), a company incorporated in the PRC
	with limited liability, a non wholly-owned subsidiary of
	the Company
"Angang Engineering"	Angang Engineering Technology Development Co.,
	Ltd.* ( 鞍 鋼 集 團 工 程 技 術 發 展 有 限 公 司), a
	wholly-owned subsidiary of Angang Group Company
	and a connected person of the Company
"Angang Group Company"	Angang Group Company Limited* ( 鞍 鋼 集 團 有 限
	公 司), a company incorporated in the PRC with limited
	liability, the ultimate controlling Shareholder
"Angang Holding"	Anshan Iron & Steel Group Co., Ltd. ( 鞍 山 鋼 鐵 集
	團 有 限 公 司), a wholly-owned subsidiary of Angang
	Group Company and the immediate Shareholder which
	holds approximately 53.33% of the equity interest in the
	Company as at the date of this announcement
"Board"	the board of Directors
"Capital Increase	the capital increase agreement entered into between the
Agreement"	Company, Angang Engineering and Angang Energy
	on 12 April 2021 to increase the registered capital
	of Angang Energy from RMB50 million to RMB150
	million on pro rata basis

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"Company"	Angang Steel Company Limited* ( 鞍 鋼 股 份 限 公 司),
	a joint stock limited company incorporated in Anshan,
	Liaoning Province, the PRC, the H shares of which
	are listed on the Hong Kong Stock Exchange (Stock
	code: 347) and the A shares of which are listed on the
	Shenzhen Stock Exchange (Stock code: 898)
"Director(s)"	director(s) of the Company
"Hong Kong"	the Hong Kong Special Administrative Region of the
	PRC
"Listing Rules"	the Rules Governing the Listing of Securities on The
	Stock Exchange of Hong Kong Limited
"LNG + H2 Project"	the liquefied natural gas (LNG) and hydrogen
	production project to be carried out by a joint venture
	to be incorporated in the PRC by Angang Energy and
	an independent third party of the Group with a total
	registered capital of RMB200 million, and each of them
	contributing 50% of the equity interest thereof
"PRC" or "China"	the People's Republic of China, which for the purpose
	of this announcement excludes Hong Kong, the Macau
	Special Administrative Region and Taiwan
"RMB"	Renminbi, the lawful currency of the PRC
"Shareholder(s)"	shareholder(s) of the Company
"%"	percent

In addition, the terms "associate", "connected person", "connected transaction", "continuing connected transaction", "controlling shareholder", "percentage ratio(s)" and "subsidiary(ies)" shall have the meanings ascribed to them under the Listing Rules.

By Order of the Board

ANGANG STEEL COMPANY LIMITED*

Wang Yidong

Executive Director and Chairman of the Board

Anshan City, Liaoning Province, the PRC

12 April 2021

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As at the date of this announcement, the Board comprises the following Directors:

Executive Directors:	Independent Non-executive Directors:
Wang Yidong	Feng Changli
Li Zhen	Wang Jianhua
Li Zhongwu	Wang Wanglin
	Zhu Keshi

• For identification purpose only

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