How To Make Money From Factoring

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1 Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement. CONNECTED TRANSACTION FACTORING AGREEMENT As at 31 August 2015, Electronic Manufacture Company, a controlled subsidiary of the Company, and China Electronics Leasing Company entered into the Factoring Agreement, pursuant to which, China Electronics Leasing Company shall provide Electronic Manufacture Company with account receivable factoring service with revolving factoring facilities of RMB150,000,000 (equivalent to approximately HK$190,500,000). The term of the agreement is one year, taking effect upon fulfillment of necessary approval procedures by the Company. Since CEC, the ultimate controller of the Company, is the controlling shareholder of China Electronics Leasing Company, China Electronics Leasing Company is a connected person of the Company. The transactions contemplated under the Factoring Agreement therefore constitute connected transactions under the Listing Rules. Pursuant to the Listing Rules, relevant applicable percentage ratios of the transactions contemplated under the Factoring Agreement exceed 0.1% but are lower than 5%. Therefore, the Company is subject to the reporting and announcement requirements under Chapter 14A of the Listing Rules, but exempt from the circular (including independent financial advice) and independent Shareholders approval requirements under Rule 14A.76 of the Listing Rules. 1

2 As at 31 August 2015, Electronic Manufacture Company, a controlled subsidiary of the Company, and China Electronics Leasing Company entered into the Factoring Agreement, pursuant to which, China Electronics Leasing Company shall provide Electronic Manufacture Company with account receivable factoring service with revolving factoring facility of RMB150,000,000 (equivalent to approximately HK$190,500,000). The term of the agreement is one year, taking effect upon fulfillment of necessary approval procedures by the Company. The principal terms of the Factoring Agreement are set out as follows: FACTORING AGREEMENT Date 31 August 2015 Parties Factor : China Electronics Leasing Company Transferor of accounts receivable : Electronic Manufacture Company Factoring arrangement (1) List and credit limit of the payers of the account receivable (i.e. the buyer of a basic business contract) which shall be transferred to China Electronics Leasing Company are: Name of the payer of the accounts receivable Name of the basic business agreement : CEC LCD Company : Basic Contract on the Purchase and Supply of Production Materials Credit limit : RMB150,000,000 (equivalent to approximately HK$190,500,000) Financing term : Within one year (subject to the term of basic business contract) 2

3 (2) Use of factoring facilities : working capital applied by Electronic Manufacture Company (3) Factoring credit exposure limit : RMB150,000,000 (equivalent to approximately HK$190,500,000) on revolving basis with a term of one year (limit of individual facility shall be subject to the term of basic business contract), taking effect upon fulfillment of necessary approval procedures by Electronic Manufacture Company. The term of an individual facility shall not exceed five months while the financing term of each account receivable shall commence from the granting date of factoring facilities to the settlement date as agreed by both parties. The actual granting date of factoring facilities and the settlement date shall be the commencing and ending dates as set out in the transfer voucher of withdrawing factoring prepayment or other certificates of indebtedness. (4) Financing ratio : Not more than 100% of the qualified accounts receivable transferred to China Electronics Leasing Company (5) Financing pattern : Individual account receivable corresponds to an individual factoring facility (6) The underling services of factoring business applied by Electronic Manufacture Company under the Factoring Agreement include trade financing. (7) Within the valid period of the Factoring Agreement, Electronic Manufacture Company shall apply to transfer all accounts receivable incurred from sales of goods or provision of services to buyers on credit to China Electronics Leasing Company according to terms of conditions under the Factoring Agreement, however, for the accounts receivable which have not been transferred by specific buyers, Electronic Manufacture Company shall not pledge, entrust or transfer to any third parties. (8) For the outstanding qualified accounts receivable, Electronic Manufacture Company may, based on its own actual needs, apply for factoring credit to China Electronics Leasing Company within the factoring credit limit determined by China Electronics Leasing Company. The factoring credit is applied by way of accounts receivable. 3

4 (9) Interests and expenses involved in the Factoring Agreement include interest of factoring facilities, service fees of factoring business, other expenses and overdue charges. Details of which are as follows: (a) Interest of factoring facilities (b) Service fees of factoring business : Within the valid period of the Factoring Agreement, the factoring facilities granted by China Electronics Leasing Company to Electronic Manufacture Company are exempt from interest accrued on such factoring facilities, thus no adjustment is needed when the People s Bank of China adjusts the benchmark interest rate for loan. : Under the Factoring Agreement, service charge of factoring business is determined at 0.05% of accounts receivable transferred by Electronic Manufacture Company to China Electronics Leasing Company. The service fees are charged for each transfer of accounts receivable made by Electronic Manufacture Company to China Electronics Leasing Company at the time of transfer. Under any conditions, China Electronics Leasing Company reserves the rights to collect service fees of factoring business from Electronic Manufacture Company in a proper manner at any time after the accounts receivable is transferred by Electronic Manufacture Company. (c) Overdue charges : Overdue charges are calculated on daily basis for the overdue factoring facilities, service fees of factoring business and other expenses and shall be calculated at a premium of 30% of daily interest rate agreed under (9)(a) mentioned above (interest of factoring facilities) from the date of overdue mentioned (i.e. a premium of 30% of the interest rate of factoring facilities), till the overdue amount is paid off. 4

5 Other expenses : All expenses incurred in the business processing and fulfillment of the Factoring Agreement, including but not limited to: insurance premium, notarial fee, legal cost, arbitration fee, execution fee, travel expense, etc. All other expenses shall be borne by Electronic Manufacture Company. If any advances or payments are made by China Electronics Leasing Company, Electronic Manufacture Company shall pay the amount to China Electronics Leasing Company in full as required by China Electronics Leasing Company. If the expenses are agreed to be paid by a buyer under the basic business contract but the buyer fails to bear the expenses, Electronic Manufacture Company shall bear the obligation of final payment. PRICING BASIS The Charging standards of the interests and fees (including the service charges from factoring business, other fees and default payment) incurred from the Factoring Agreement entered into between Electronic Manufacture Company and China Electronics Leasing Company shall not exceed the standards of fees of the same type in the same period charged by commercial banks in PRC. Prior to the use of the factoring business services provided by China Electronics Leasing Company, Electronic Manufacture Company is entitled to determine whether the terms of engagement offered by China Electronics Leasing Company are better or no less favorable than the same type of services offered by the independent third parties in market conditions. If Electronic Manufacture Company and the commercial banks in PRC entered into effective agreements or contracts within the validity period of the Factoring Agreement, and in relation to dealing with the same type of services under the Factoring Agreement, agreed on the standards of interests and fees which are better than those provided by China Electronics Leasing Company, in accordance with the requirements from Electronic Manufacture Company, China Electronics Leasing Company shall adjust the aforesaid charging standards of the interests and fees under the Factoring Agreement to be equal or more favorable than those of the commercial banks in the PRC. 5

6 REASONS FOR AND BENEFITS OF ENTERING INTO THE FACTORING AGREEMENT Reference is made to the circular of the Company dated 12 December 2014 in relation to the continuing connected transaction between the Group and CEC Group. Pursuant to the sale agreement dated 26 October 2012 entered into between the Company and CEC for the sale of materials by the Group to CEC Group, Electronic Manufacture Company and CEC LCD Company, a connected person of the Company, entered into the basic contract for procurement and supply of production materials ( ), pursuant to which, Electronic Manufacture Company will provide control circuit boards in compliance with technical specifications to CEC LCD Company, and the specific amount, delivery date, settlement price, etc. shall be subject to the orders with the payment settled within 60 days after the end of the month of receipt of the invoice issued by Electronic Manufacture Company as agreed. During the actual operation, CEC LCD Company settles the payment with 3-month banker s acceptances and partly in cash within 60 days after the end of the month of receipt of invoice. In order to ensure the safety of accounts receivable, diversify the capital allocation and management measures and optimize the financial structure, Electronic Manufacture Company and China Electronics Leasing Company entered into the Factoring Agreement, to carry out factoring without recourse on the accounts receivable with CEC LCD Company with the factoring financing limit of RMB150,000,000 (revolving) and the validity of 1 year, with effect upon the fulfillment of necessary approval procedures by the Company. China Electronics Leasing Company was established in accordance with the Interim Measures on Commercial Factoring Business Management in China (Shanghai) Pilot Free-Trade Zone (China (Shanghai) Free-Trade Management [2014] No. 26) ( ( [2014] 26 )) and other relevant regulations, which has the basic conditions and comprehensive advantages to carry out the trade financing business including commercial factoring. As for the present public commercial factoring without recourse, the payment method of bills is provided, which is the electronic bankers acceptance from China Electronics Financial Co., Ltd. ( ). The factored banks include large commercial banks such as Agricultural Bank of China and China Merchants Bank. The risks involved the selection of partners and business operation model are controllable. This connected transaction is in favor of the safety of the accounts receivable of Electronic Manufacture Company, diversification of the capital allocation and management, optimization of the financial structure and increase in the capital usage efficiency. The terms of the Factoring Agreement were entered into on an arm s length basis and on normal commercial terms. Therefore, the Directors (including the independent non-executive Directors) are of the view that the terms of the Factoring Agreement are fair and reasonable, in the ordinary and usual course of business of 6

7 the Group and on normal commercial terms, of fair pricing and in the interests of the Company and the Shareholders as a whole. INFORMATION OF THE PARTIES The Group is principally engaged in the development, manufacture and sale of electronic equipment products and consumer electronic products as well as electronic manufacturing services. China Electronics Leasing Company is principally engaged in the finance lease, lease business, purchase of leased assets from domestic and overseas markets, disposal of residual value and maintenance of leased assets, provision of consultation and guarantees for lease transaction, and concurrently engaged in the commercial factoring business relating to the principal business. China Electronics Leasing Company was established in April Based on the overall layout of financial services provided by CEC to the independent core industrial chain, China Electronics Leasing Company is committed to setting up a new layout in relation to the financial services of the new flat display supply chain in the industry. Leveraging diversified financial services plan including finance lease, commercial factoring and domestic and overseas trade structure upgrade, China Electronics Leasing Company creates high value-added financial services for the core industry and optimizes the upstream and downstream financial services chains of the core industry. On the premise of achieving win-win for all, China Electronics Leasing Company strives for the upgrade of CEC s overall industrial capacity and financial services level. As at the date of the announcement, PEGL, the controlling shareholder of the Company, held approximately 23.05% of the total share capital in issue of the Company, while NEIIC, the controlling shareholder of PEGL, held 56.85% equity interests in PEGL and also held approximately 4.45% of the total share capital in issue of the Company. CEC is the ultimate controlling shareholder of the Company and held 70% of the issued share capital of NEIIC. CEC indirectly held 100% equity interests in China Electronics Leasing Company and is the controlling shareholder of China Electronics Leasing Company, which is therefore a connected person of the Company. IMPLICATIONS UNDER THE LISTING RULES Since CEC, the ultimate controller of the Company, is the controlling shareholder of China Electronics Leasing Company, China Electronics Leasing Company is a connected person of the Company. The transactions contemplated under the Factoring Agreement therefore constitute connected transactions under the Listing Rules. 7

8 Pursuant to the Listing Rules, relevant applicable percentage ratios of the transactions contemplated under the Factoring Agreement exceed 0.1% but are lower than 5%. Therefore, the Company is subject to the reporting and announcement requirements under Chapter 14A of the Listing Rules, but exempt from the circular (including the independent financial advice) and independent Shareholders approval requirements under Rule 14A.76 of the Listing Rules. None of the Directors of the Company has a material interest in the aforesaid transactions. Since Mr. Lai Weide, Mr. Xu Guofei, Mr. Yu Yanqiu, Mr. Deng Weiming and Mr. Lu Qing are connected directors, they were required to abstain from voting on the relevant resolution of the Board in relation to the approval of entering into the Factoring Agreement. DEFINITIONS Unless the context otherwise requires, the following terms used herein shall have the following meanings: Board CEC CEC Group CEC LCD Company China Electronics Leasing Company Company connected person(s) Director(s) the board of Directors China Electronics Corporation ( ), the ultimate controller of the Company CEC, its subsidiaries (for the purpose of the announcement, excluding the Group) and holding companies, and their respective associates Nanjing CEC Panda LCD Technology Co., Ltd. ( ), a company established in the PRC with limited liability and a non-wholly owned subsidiary of CEC China Electronics Commercial Financial Leasing Co., Ltd. ( ), a company established in the PRC with limited liability and a wholly-owned subsidiary of CEC Nanjing Panda Electronics Company Limited, a joint stock company incorporated in the PRC with limited liability has the meaning ascribed to it under the Listing Rules the directors of the Company 8

9 Electronic Manufacture Company Factoring Agreement Group HK$ Hong Kong Listing Rules NEIIC PEGL PRC RMB Shareholder(s) Stock Exchange Nanjing Panda Electronics Manufacturing Co., Ltd ( ) a company established in the PRC with limited liability and a non-wholly owned subsidiary of the Company the non-recourse factoring agreement entered into between Electronic Manufacture Company and China Electronics Leasing Company on 31 August 2015, the major terms of which are set out in the announcement the Company and its subsidiaries Hong Kong dollar, the lawful currency of Hong Kong Hong Kong Special Administrative Region of the PRC the Rules Governing the Listing of Securities on the Stock Exchange (as amended from time to time) Nanjing Electronics Information Industrial Corporation ( ), the controlling shareholder of PEGL Panda Electronics Group Limited ( ), the controlling shareholder of the Company, holding approximately 23.05% of the total issued share capital of the Company as at the date of the announcement the People s Republic of China (for the purpose of this announcement, excluding Hong Kong, Macau Special Administrative Region and Taiwan) the lawful currency of the PRC the shareholder(s) of the Company The Stock Exchange of Hong Kong Limited % per cent 9

10 In this announcement, for the purpose of illustration only, amounts quoted in RMB have been converted into HK$ at the rate of RMB1.00 to HK$1.27. Such exchange rate has been used, where applicable, for the purpose of illustration only and does not constitute a representation that any amounts were or may have been exchanged at this or any other rates or at all. Nanjing, the People s Republic of China 31 August 2015 By order of the Board Nanjing Panda Electronics Company Limited Lai Weide Chairman As at the date of this announcement, the Board comprises Executive Directors: Mr. Lai Weide, Mr. Xu Guofei and Mr. Xia Dechuan; Non-executive Directors: Mr. Yu Yanqiu, Mr. Deng Weiming and Mr. Lu Qing; and Independent Non-executive Directors: Ms. Du Jie, Mr. Chu Wai Tsun, Vincent and Mr. Zhang Chun. 10