Luzhou Xinglu Water : DISCLOSEABLE TRANSACTION - FINANCE LEASE AGREEMENT

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

瀘 州 市 興 瀘 水 務（集 團）股 份 有 限 公 司

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

(Stock code: 2281)

DISCLOSEABLE TRANSACTION

FINANCE LEASE AGREEMENT

FINANCE LEASE AGREEMENT

The Board announces that on 23 December 2019 (after trading hours), Xinglu Wastewater Treatment, a non-wholly owned subsidiary of the Company, entered into the Finance Lease Agreement with CMB Financial Leasing, pursuant to which

1. CMB Financial Leasing has agreed to purchase the Leaseback Assets from Xinglu Wastewater Treatment at an aggregate consideration of RMB100,000,000; and (ii) CMB Financial Leasing has agreed to lease the Leaseback Assets back to Xinglu Wastewater Treatment at a total lease amount payable of up to RMB109,975,766.25.

LISTING RULES IMPLICATIONS

As the highest applicable percentage ratio under Chapter 14 of the Listing Rules in respect of the transaction contemplated under the Finance Lease Agreement is greater than 5% but less than 25%, the transaction contemplated thereunder constitutes a discloseable transaction for the Company and is subject to reporting and announcement requirements under Chapter 14 of the Listing Rules.

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THE FINANCE LEASE AGREEMENT

The principal terms of the Finance Lease Agreement are set out below:

Date:23 December 2019 (after trading hours)

Parties:(1) Lessor/purchaser: CMB Financial Leasing Co., Ltd.*

( 招 銀 金 融 租 賃 有 限 公 司); and

1. Lessee/vendor: Luzhou Xinglu Wastewater Treatment Co., Ltd.* ( 瀘 州 市 興 瀘 污 水 處 理 有 限 公 司)

Leaseback Assets: Wastewater treatment equipment, including water pumps, air blowers, spin-drier, etc., located in Chengdong Wastewater Treatment Plant in Luzhou City.

The net book value of the Leaseback Assets as at 15 October 2019, amounted to approximately RMB114,390,200. The appraised net asset value of the Leaseback Assets as at 15 October 2019 as appraised by an independent valuer using the cost method amounted to RMB113,092,847.

Subject matter: CMB Financial Leasing agreed to purchase the Leaseback Assets from Xinglu Wastewater Treatment and then lease back the Leaseback Assets to Xinglu Wastewater Treatment in accordance with the terms and conditions of the Finance Lease Agreement.

Consideration for An aggregate amount of RMB100,000,000 which was

transfer of the determined after arm's length negotiations between the

Leaseback Assets: parties with reference to the appraised net asset value of the Leaseback Assets as at 15 October 2019 as appraised by an independent valuer as set out above.

Payment of consideration for transfer of the Leaseback Assets:

The total consideration for the transfer of the Leaseback Assets of RMB100,000,000 will be paid by CMB Financial Leasing to Xinglu Wastewater Treatment by instalments. Xinglu Wastewater Treatment shall make a seven-day advance written notice to CMB Financial Leasing to request payment for the first instalment within one month after the execution of the Finance Lease Agreement; and for the payment for the balance of the consideration, Xinglu Wastewater Treatment shall, at its discretion, make written requests for payment within six months after the execution of the Finance Lease Agreement.

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Xinglu Wastewater Treatment shall specify the amount of each payment in such request(s). Xinglu Wastewater Treatment shall be entitled to make a request for payment of an amount specified in such request upon the fulfillment of the following conditions:

1. the Finance Lease Agreement and other related legal documents having been validly signed and becoming effective;
2. CMB Financial Leasing having received the internal resolution of Xinglu Wastewater Treatment approving the transaction contemplated under the Finance Lease Agreement;
3. CMB Financial Leasing having received the corresponding security deposit and the initial lease amount (as specified below) in full;
4. the security documents and security interests under the Finance Lease Agreement having come into effect (if applicable);
5. CMB Financial Leasing having received the ownership certificates of the Leaseback Assets and other documents CMB Financial Leasing deems necessary proving that Xinglu Wastewater Treatment legally owns the Leaseback Assets;
6. the handover letter in the form agreed in the Finance Lease Agreement having been provided by Xinglu Wastewater Treatment to CMB Financial Leasing;
7. no default on the part of Xinglu Wastewater Treatment has occurred under the Finance Lease Agreement;
8. other conditions stipulated in the Finance Lease Agreement;
9. other conditions reasonably requested by CMB Financial Leasing.

CMB Financial Leasing may, at its discretion, decide to waive, on a temporary or permanent basis, any of the aforementioned conditions.

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Lease period:60 months commencing from the relevant Lease Date

Security deposit: An aggregate amount of RMB1,500,000, which shall be paid by Xinglu Wastewater Treatment to CMB Financial Leasing prior to each Lease Date in proportion to the transfer consideration amount requested by Xinglu Wastewater Treatment. The amount of the security deposit will be returned to Xinglu Wastewater Treatment by way of off-setting against the final instalment of the total lease amount payable by Xinglu Wastewater Treatment and provided that no default on the part of Xinglu Wastewater Treatment has occurred during the lease period.

Initial lease amount: An aggregate amount of RMB2,900,000, which shall be paid by Xinglu Wastewater Treatment to CMB Financial Leasing on the relevant Lease Date in proportion to the transfer consideration amount requested by Xinglu Wastewater Treatment.

Lease payment schedule: The highest total amount of the lease payable is RMB109,975,766.25 consisting of the aggregate initial lease amount of RMB2,900,000 and the lease amount up to RMB107,075,766.25 which shall be paid by Xinglu Wastewater Treatment to CMB Financial Leasing in 20 instalments every one to three months after each Lease Date while the last instalment shall be paid on the fifth anniversary of such Lease Date. The actual amount of each instalment of the lease amount shall be calculated based on the corresponding transfer consideration instalment amount requested by Xinglu Wastewater Treatment and a fixed interest rate of 4.275%. The highest lease amount of RMB107,075,766.25 consists of:

1. the total principal lease amount of RMB100,000,000; and
2. the total interest of RMB7,075,766.25 with a fixed interest rate of 4.275%.

Guarantee:The Company has agreed to provide and CMB Financial Leasing has accepted an irrevocable joint and several liability guarantee for all debts of Xinglu Wastewater Treatment under the Finance Lease Agreement.

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Ownership of the	The legal title of the Leaseback Assets shall be transferred
Leaseback Assets:	to CMB Financial Leasing in batches upon its payment of
	each instalment of the consideration for the transfer of the
	Leaseback Assets and shall be vested in CMB Financial
	Leasing throughout the lease period. Upon the expiry of
	the lease period and subject to full payment by Xinglu
	Wastewater Treatment of the total lease amount, nominal
	repurchase price of RMB1 and other fees payable under the
	Finance Lease Agreement, the legal title of the Leaseback
	Assets shall be transferred back to Xinglu Wastewater
	Treatment.

REASONS FOR AND BENEFITS OF ENTERING INTO THE FINANCE LEASE AGREEMENT

Upon the execution of the Finance Lease Agreement, the Group will be able to make more efficient utilisation of its internal resources and to effectively increase the liquidity of its assets as such financing arrangement will allow the Group to expand its financing channels, optimize its liability structure and enhance the working capital for its principal business by leveraging on the financing platform without having any material advance impact on the operation of the Group. The Directors believe that with its rich experience and expertise in the financial leasing service area, CMB Financial Leasing will be able to satisfy the financing needs of the Group in a timely manner. The Group intends to use the proceeds to replenish the liquidity of the Company and pay for the existing construction projects.

The Directors (including the independent non-executive Directors) are of the view that the terms and conditions of the Finance Lease Agreement are fair and reasonable, on normal commercial terms, and are in the interest of the Company and its Shareholders as a whole.

INFORMATION OF CMB FINANCIAL LEASING, XINGLU WASTEWATER TREATMENT AND THE GROUP

CMB Financial Leasing was founded in 2008 as a subsidiary of China Merchants Bank Co., Ltd.* ( 招 商 銀 行 股 份 有 限 公 司). It is mainly engaged in the provision of financial leasing services in respect of large and medium-sized equipment to domestic large enterprises and SMEs and overseas customers in electricity, manufacturing, transportation, construction and mining sectors.

To the best of the Directors' knowledge, information and belief having made all reasonable enquiry, CMB Financial Leasing and its ultimate beneficial owner are third parties independent of the Company and its connected persons.

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Xinglu Wastewater Treatment is a PRC limited liability company established on 11 December 2000 and a non-wholly owned subsidiary of the Company. Its principal business includes the collection, treatment and reuse of the domestic sewage and industrial wastewater; the research and development, the promotion and application and the technical training of sewage purification technology; the research and development, the manufacturing and sales of water purification equipment; sludge treatment, etc.

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.

LISTING RULES IMPLICATIONS

As the highest applicable percentage ratio under Chapter 14 of the Listing Rules in respect of the transaction contemplated under the Finance Lease Agreement is greater than 5% but less than 25%, the transaction contemplated thereunder constitutes a discloseable transaction for the Company and is subject to reporting and announcement requirements under Chapter 14 of the Listing Rules.

DEFINITIONS

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

"Board"	the board of Directors
"CMB Financial Leasing"	CMB Financial Leasing Co., Ltd.* ( 招銀金融租賃有限
	公司), established in April 2008 as a PRC limited liability
	company and a wholly-owned subsidiary of China Merchants
	Bank Co., Ltd.* (招商銀行股份有限公司)
"Company"	Luzhou Xinglu Water (Group) Co., Ltd.* ( 瀘 州 市 興 瀘
	水務（集團）股份有限公司), a joint stock company with
	limited liability incorporated in the PRC, whose H shares
	are listed on the Main Board of The Stock Exchange of
	Hong Kong Limited
"Director(s)"	director(s) of the Company
"Finance Lease	the finance lease agreement entered into between Xinglu
Agreement"	Wastewater Treatment and CMB Financial Leasing in
	respect of the Leaseback Assets dated 23 December 2019

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"Group"	the Company and its subsidiaries
"Hong Kong"	the Hong Kong Special Administrative Region of the PRC
"Lease Date"	the date when CMB Financial Leasing makes its payment
	of each instalment of the consideration for transfer of
	the Leaseback Assets to Xinglu Wastewater Treatment,
	which is expected to be no later than six months after the
	execution of the Finance Lease Agreement
"Leaseback Assets"	wastewater treatment equipment, including water pumps, air
	blowers, spin-drier, etc. located in Chengdong Wastewater
	Treatment Plant in Luzhou City
"Listing Rules"	the Rules Governing the Listing of Securities on The
	Stock Exchange of Hong Kong Limited, as amended,
	supplemented or otherwise modified from time to time
"PRC"	the People's Republic of China, which for the purpose of
	this announcement, excludes Hong Kong, Macau Special
	Administrative Region of the PRC and Taiwan
"RMB"	Renminbi, the lawful currency of the PRC
"Shareholder(s)"	holder(s) of the share(s) of the Company
"Xinglu Wastewater	Luzhou Xinglu Wastewater Treatment Co., Ltd.* ( 瀘 州
Treatment"	市 興 瀘 污 水 處 理 有 限 公 司), a PRC limited liability
	company established on 11 December 2000 and a non-
	wholly owned subsidiary of the Company
	By order of the Board
	Luzhou Xinglu Water (Group) Co., Ltd.*
	Zhang Qi
	Chairman

Luzhou, Sichuan Province, the PRC

23 December 2019

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

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