Luzhou Xinglu Water : CONTINUING CONNECTED TRANSACTIONS - THE CONSTRUCTION SERVICE AGREEMENT WITH XINGLU JUTAI CONSTRUCTION

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Luzhou Xinglu Water (Group) Co., Ltd.*

ᖐψ̹ጳᖐ˥ਕ€ණྠٰ΅Ϟࠢʮ̡

(a joint stock company incorporated in the People's Republic of China with limited liability)

(Stock code: 2281)

CONTINUING CONNECTED TRANSACTIONS -

THE CONSTRUCTION SERVICE AGREEMENT WITH XINGLU

JUTAI CONSTRUCTION

BACKGROUND

On 26 February 2021 (after trading hours), the Company entered into the Xinglu Jutai Construction Service Agreement with Xinglu Jutai Construction, pursuant to which, the Company agreed to provide water supply pipelines installation services to Xinglu Jutai Construction with a construction period of 90 calendar days in 2021.

LISTING RULES IMPLICATIONS

As at the date of this announcement, Xinglu Jutai Construction is indirectly wholly owned by Jutai Real Estate, which is a 30%-controlled company (as defined in the Listing Rules) of Xinglu Investment, the Controlling Shareholder. Accordingly, Xinglu Jutai Construction is a connected person of the Company under the Listing Rules and the transactions contemplated under the Xinglu Jutai Construction Service Agreement constitute continuing connected transactions for the Company pursuant to Chapter 14A of the Listing Rules.

Pursuant to Rules 14A.81 and 14A.82 of the Listing Rules, the transactions contemplated under the Xinglu Jutai Construction Service Agreement are required to be aggregated with other transactions contemplated under the Previous Construction Service Agreements. As each of the applicable percentage ratio (other than the profits ratio) in respect of the transactions contemplated under the Xinglu Jutai Construction Service Agreement and the Previous Construction Service Agreements, on an annual and aggregated basis, is more than 0.1% but less than 5%, the transactions thereunder are subject to the reporting and announcement requirements but exempt from the independent shareholders' approval requirement pursuant to Rule 14A.76(2) of the Listing Rules.

I. BACKGROUND

On 26 February 2021 (after trading hours), the Company entered into the Xinglu Jutai Construction Service Agreement with Xinglu Jutai Construction, pursuant to which, the Company agreed to provide water supply pipelines installation services to Xinglu Jutai Construction.

The principal terms of the Xinglu Jutai Construction Service Agreement are set out below:

Date:

26 February 2021 (after trading hours)

Parties:

• (1) the Company; and

• (2) Xinglu Jutai Construction

Project:

The project under the Xinglu Jutai Construction Service Agreement is No. 090 Land Parcel, No. 1-11 Buildings and the Underground Garage (090 ໮ή෯ 1-11 ໮ᅽʿ ήɨԓࢫ ) which is located in Jiangnan New District of Luzhou City, the PRC.

Scope of Construction

Service:

The tap water pipelines installation services that the Company agreed to provide to Xinglu Jutai Construction under the Xinglu Jutai Construction Service Agreement include:

• (1) the installation of water pipelines from the municipal water transporting and distributing principal pipelines to the pipelines before the commercials balance meters ( ൱׸ഐၑ˥፶ );

• (2) the installation of fire mains;

• (3) the installation of commercials balance meters; and

• (4) the installation of the secondary water supply equipment and the auxiliary equipment.

  Construction

  Period:

• 90 calendar days starting from the date notified by Xinglu Jutai Construction in writing after its payment of first installment of construction service fee in accordance with the Xinglu Jutai Construction Service Agreement and ending on or before 31 December 2021.

Construction

Service Fee and Payment Terms:

The final construction service fee under the Xinglu Jutai Construction Service Agreement will be not more than an estimated amount of RMB7 million (tax inclusive) and shall be determined by Xinglu Jutai Construction and the Company, based on the final mapping report and the actual costs and expenses set out in the settlement report ( ഐၑࣣ ).

Payments shall be made in the following manner:

(1) Approximately RMB5.1 million shall be paid by

Xinglu Jutai Construction within five (5) business days after signing the Xinglu Jutai Construction Service Agreement; and

(2)the balance of the final construction service fee shall be paid by Xinglu Jutai Construction after the completion of the substantial construction works and prior to the issuance of installation notice of commercials balance meters by the Company.

Period of Warranty:

Two (2) years commencing from the examination and acceptance date of the construction work of the project under the Xinglu Jutai Construction Service Agreement.

Pricing Policy:

The construction service fee was determined by the Company and Xinglu Jutai Construction in accordance with the pricing standard set out in the Company's internal pricing document (Lu Shui Gu Fen [2019] No.75) which was made based on the documents published by the governmental authorities from time to time, including but not limited to the Notice on Relaxation of the Price Control of Installation, Inspection and Repairment for Utilities Projects (Chuanfagaijiage [2015] No. 884) ( ᗫ׵׳ක˥ཥं ʈ೻τༀʿᏨݟၪࡌᄆࣸٙஷٝ€ʇ೯ҷᄆࣸ

[2015]884 ໮) issued by Sichuan Province Development and Reform Commission ( ̬ʇ޲೯࢝ձҷࠧ։ࡰ ึ ), the Notice on Forwarding Relaxation of the Price Control of Installation, Inspection and Repairment for Utilities Projects (Chuanfagaijiage [2016] No. 71) (ᗫ ׵ᔷ೯׳ක˥ཥंʈ೻τༀʿᏨݟၪࡌᄆ ࣸٙஷٝ€ʇ೯ҷᄆࣸ [2016]71 ໮ ) issued by Luzhou City Development and Reform Commission ( ᖐψ̹೯࢝ձҷࠧ։ࡰึ ), and the Sichuan Province Quota of Project Quantities Detailed Pricing List for Engineering Construction (2015 version) (̬ ʇ޲ܔணʈ೻ʈ೻ඎ૶ఊࠇᄆ֛ᕘ (2015 ϋ و )) issued by Sichuan Province Housing and Urban-Rural Development Department ( ̬ʇ޲Иגձ۬ඊ ܔணᝂ ) with their respective ancillary documents or applicable revised versions.

The governmental and Company's pricing standards provide pre-determined mechanism for calculation of construction service fees detailing the fees to be charged for each category of service and the applicable formula for calculation of fees in different scenarios under each category. While determining the construction service fee under the Xinglu Jutai Construction Service Agreement, the Company and Xinglu Jutai Construction calculated in accordance with the pre-determined formulae based on the actual construction area of the project, the specific number of the users, the types of the construction materials and their respective market prices, and in ordinary and usual course of business and on normal commercial terms, and such terms and conditions were negotiated on an arm's length basis and are not more favorable than those offered by the Group to Independent Third Parties.

II. HISTORICAL FIGURES

The table below sets out the actual transaction amounts, being construction service fees paid by Xinglu Jutai Construction to the Group, for the three years ended 31 December 2018, 2019 and 2020 respectively.

For the year ended 31 December

Transaction amounts paid by	2018	2019	2020
(RMB)	(RMB)	(RMB)
Xinglu Jutai Construction	4,000	Nil(1)	517,343
Note:

(1) There was no construction service transaction between the Group and Xinglu Jutai Construction during the year ended 31 December 2019.

III. ANNUAL CAPS

The table below sets out the annual caps for the transactions under the Xinglu Jutai Construction Service Agreement, the Previous Construction Service Agreements and the aggregate annual cap of them, which are the estimated largest construction service fees determined in accordance with the aforementioned pricing policies.

For the year
ending 31
Annual caps	December 2021
(RMB in million)
Xinglu Jutai Construction Service Agreement	7.0
Previous Construction Service Agreements	19.6
Aggregate Annual Cap	26.6
IV. INTERNAL CONTROL

In order to ensure the terms of the Xinglu Jutai Construction Service Agreement are on normal commercial terms and fair and reasonable to the Company and the Shareholders and are no more favourable than those offered by the Group to Independent Third Parties, the Company has formulated the following internal control policies and adopted the following internal control measures:

(i) the legal department and finance department of the Company will closely monitor the transactions under the Xinglu Jutai Construction Service Agreement to ensure that the transaction amount will not exceed the annual caps for the Xinglu Jutai Construction Service Agreement;

(ii) the legal department of the Company will conduct regular random checks to review and assess whether the transactions contemplated under the Xinglu Jutai Construction Service Agreement are conducted on normal commercial terms, in accordance with the terms set out in agreements and whether the construction service fees and relevant contract terms are in the interest of the Company and the Shareholders as a whole;

(iii) the Company's external auditors will conduct an annual review of the transactions entered into under the Xinglu Jutai Construction Service Agreement to ensure that the transaction amount is within the annual cap and the transactions are in accordance with the terms set out in the agreement; and

(iv) the Company's independent non-executive Directors will conduct regular reviews of the status of the transactions under the Xinglu Jutai Construction Service Agreement to ensure that the Company has complied with its internal approval process, the terms of the Xinglu Jutai Construction Service Agreement and the relevant requirements under the Listing Rules.

V. INFORMATION ABOUT XINGLU JUTAI CONSTRUCTION AND THE GROUP

Xinglu Jutai Construction is a limited liability company established in the PRC on 13 March 2020, which as at the date of this announcement is indirectly wholly owned by Jutai Real Estate. Jutai Real Estate is a 30%-controlled company (as defined in the Listing Rules) of Xinglu Investment, the Controlling Shareholder. Xinglu Jutai Construction is primarily engaged in the Engineering Procurement Construction (EPC) projects of real estate construction works. Xinglu Investment is directly held as to 90% by Luzhou State-owned Assets Supervision and Administration Commission ( ᖐψ̹਷Ϟ༟ପ္ຖ၍ଣ։ࡰึ ) and is primarily engaged in investment and assets management.

The Group is mainly engaged in the provision of tap water supply and related installation and maintenance services and wastewater treatment and related infrastructure construction services.

VI. BENEFITS OF AND REASONS FOR THE TRANSACTIONS

The Company has been providing installation and maintenance services in its ordinary and usual course of business to companies in Luzhou City, and therefore, the Company is familiar with the requirements and the specifications for the installation and maintenance services required by local government and companies. The Directors believe that entering into the Xinglu Jutai Construction Service Agreement and are beneficial for the long-term business relationship between the Company and Xinglu Jutai Construction. By entering into the Xinglu Jutai Construction Service Agreement, the Group can further expand its principlebusiness. The Directors are of the view that entering into the Xinglu Jutai Construction Service Agreement are in line with the Group's goal to enhance the Company's position in the industry and its influence in the region.

The Directors (including the independent non-executive Directors) are of the view that the terms of the transactions under the Xinglu Jutai Construction Service Agreement are fair and reasonable, on normal commercial terms, in the ordinary and usual course of business of the Group and in the interests of the Company and its Shareholders as a whole.

Xinglu Jutai Construction Service Agreement has been approved by the Board. None of the Directors has material interest in the Xinglu Jutai Construction Service Agreement and the transactions contemplated thereunder and hence no Director is required to abstain from voting on the relevant resolutions of the Board approving the same.

VII. LISTING RULES IMPLICATIONS

As at the date of this announcement, Xinglu Jutai Construction is indirectly wholly owned by Jutai Real Estate, which is a 30%-controlled company (as defined in the Listing Rules) of Xinglu Investment, the Controlling Shareholder. Accordingly, Xinglu Jutai Construction is a connected person of the Company under the Listing Rules and the transactions contemplated under the Xinglu Jutai Construction Service Agreement constitute continuing connected transactions for the Company pursuant to Chapter 14A of the Listing Rules.

Pursuant to Rules 14A.81 and 14A.82 of the Listing Rules, the transactions contemplated under the Xinglu Jutai Construction Service Agreement are required to be aggregated with other transactions contemplated under the Previous Construction Service Agreements. As each of the applicable percentage ratio (other than the profits ratio) in respect of the transactions contemplated under the Xinglu Jutai Construction Service Agreement and the Previous Construction Service Agreements, on an annual and aggregated basis, is more than 0.1% but less than 5%, the transactions thereunder are subject to the reporting and announcement requirements but exempt from the independent shareholders' approval requirement pursuant to Rule 14A.76(2) of the Listing Rules.

VIII. DEFINITIONS

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

"Board"

the board of Directors

"Company"

Luzhou Xinglu Water (Group) Co., Ltd.* ( ᖐψ̹ጳᖐ ˥ਕ€ණྠٰ΅Ϟࠢʮ̡ ), a joint stock company with limited liability incorporated in the PRC, whose H Shares are listed on the Main Board of the Stock Exchange

"Controlling

Shareholder"

has the meaning ascribed thereto under the Listing Rules, and in the context of this announcement, refers to the controlling shareholder of the Company, being Xinglu Investment

"Director(s)"

"Group"

the director(s) of the Company the Company and its subsidiaries

"H Share(s)"

the ordinary share(s) in issue in the share capital of the Company with a nominal value of RMB1.00 each, which are subscribed for and traded in Hong Kong dollars and listed on the Stock Exchange

"Hong Kong"

the Hong Kong Special Administrative Region of the PRC

"Independent Third

Party(ies)"

person(s) or company(ies) which is(are) not a connected person(s) (as defined in the Listing Rules) of the Company

"Jutai Real Estate"

Luzhou Xinglu Jutai Real Estate Co., Ltd.* ( ᖐψጳ ᖐ֢इגήପϞࠢʮ̡ ), a PRC limited liability company established on 12 November 1998 and a 30%-controlled company (as defined in the Listing Rules) of Xinglu Investment

"Listing Rules"

the Rules Governing the Listing of Securities on the Stock Exchange, as amended, supplemented or otherwise modified from time to time

"PRC"

"Previous Construction

Service Agreements"

the People's Republic of China, for the purposes of this announcement, excluding Hong Kong, the Macau Special Administrative Region of the PRC and Taiwan the construction service agreement dated 19 June

• 2020 and its supplemental agreement dated 28 January

• 2021 entered into between the Company and Luzhou Aviation Development Investment Group Co., Ltd.* (ᖐ ψঘ٤೯࢝ҳ༟ණྠϞࠢʮ̡)

"RMB"	Renminbi, the lawful currency of the PRC
"Share(s)"	share(s) of the Company
"Shareholder(s)"	shareholder(s) of the Company
"Stock Exchange"	The Stock Exchange of Hong Kong Limited
"Xinglu Investment"	Luzhou City Xinglu Investment Group Co., Ltd.* (ᖐ
ψ̹ጳᖐҳ༟ණྠϞࠢʮ̡ ), the Controlling
Shareholder of the Company, a PRC limited liability
company established on 28 January 2003 and owned
as to 90% by the State-owned Assets Supervision and
Administration Commission of Luzhou ( ᖐψ̹਷Ϟ
༟ପ္ຖ၍ଣ։ࡰึ)
"Xinglu Jutai	Luzhou Xinglu Jutai Construction Company Limited
Construction"	Jiangyang Branch* ( ᖐψጳᖐ֢इܔணϞࠢʮ
̡Ϫජʱʮ̡ ), a PRC limited liability company
established on 13 March 2020 and indirectly wholly
owned by Jutai Real Estate
"Xinglu Jutai	the construction service agreement entered into between
Construction Service	the Company and Xinglu Jutai Construction on 26
Agreement"	February 2021

By order of the Board

Luzhou Xinglu Water (Group) Co., Ltd.*

Zhang Qi

Chairman

Luzhou, Sichuan Province, the PRC

26 February 2021

As at the date of this announcement, the Board comprises of (i) three executive Directors, namely Mr. Zhang Qi, Mr. Liao Xingyue and Mr. Wang Junhua; (ii) three non-executive Directors, namely Mr. Chen Bing, Ms. Xu Yan and Mr. Xie Xin; and (iii) three independent non-executive Directors, namely Mr. Gu Ming'an, Mr. Lin Bing and Mr. Cheng Hok Kai, Frederick.

* For identification purposes only