SCE CM (00606) acquires from China SCE Group the entire issued share capital of a company holding commercial properties.

SCE CM (00606) and CHINA SCE GROUP (01966) jointly announced that on November 24, 2022, the lender (an indirectly wholly-owned subsidiary of SCE CM) and the borrower (an indirectly wholly-owned subsidiary of China SCE) entered into a loan agreement, pursuant to which the lender conditionally agreed to grant a loan to the borrower with a principal amount of up to RMB900 million, with a fixed term from the drawdown date to December 31, 2024. On November 19, 2024, the lender and the borrower entered into a supplemental loan agreement, pursuant to which the lender conditionally agreed, among other things, to extend the maturity date of the loan to December 31, 2026. As of August 31, 2026 (being the last practicable date before the publication of this announcement for determining the amount of the debt), the debt owed by China SCE Group to the SCE CM Group under the amended loan agreement was approximately RMB908.4 million, being the sum of the outstanding loan principal of RMB900 million and the accrued interest of approximately RMB8.4 million payable by the borrower under the amended loan agreement. In view of the imminent maturity of the loan, on October 27, 2026, the seller (an indirectly wholly-owned subsidiary of China SCE) and the purchaser (a directly wholly-owned subsidiary of SCE CM) entered into a share transfer agreement, pursuant to which the seller conditionally agreed to sell, and the purchaser conditionally agreed to acquire, the target shares, in order to settle the debt. The consideration payable by the purchaser to the seller for the transaction under the share transfer agreement is RMB1.06 billion, which shall first be paid at completion by way of set-off of the debt (the aggregate accrued amount as of the completion date) against the consideration on an equal amount basis. Any balance of the consideration after the above set-off shall be settled by the purchaser paying the seller at completion. The target shares comprise the entire issued share capital of each of Target Company A, Target Company B and Target Company C. As of the date of the share transfer agreement and immediately before completion, each member of the target group is an indirectly wholly-owned subsidiary of China SCE. At completion, each member of the target group will become an indirectly non-wholly-owned subsidiary of China SCE; and the SCE CM Group will acquire the entire issued share capital of the target companies, and each member of the target group will become an indirectly wholly-owned subsidiary of SCE CM. From the perspective of China SCE Group, the disposal of the target shares provides an effective way to settle its debt under the amended loan agreement, so as to avoid any default in repayment and without triggering any material cash outflow. The directors of China SCE consider that settlement of the debt by way of set-off against the consideration is more preferable than other ways of settling the debt for the following reasons: Given that China SCE Group has continuously recorded net cash outflows in its most recent financial year and its cash resources are limited, the material cash outflow associated with repaying the debt in cash would further impair its cash position. This may expose China SCE Group to significant difficulties in meeting its near-term working capital requirements and capital expenditure; It is not appropriate to seek a further extension of the loan from the SCE CM Group, as the loan itself is interest-bearing. By fully settling the debt on or before the current fixed maturity date, a further increase in the financial burden of China SCE Group can be avoided. In addition, repayment of the loan helps lower the leverage level of China SCE Group and improve its financial position, and correspondingly reduces its exposure to financial risks and the impact of adverse developments in the economic environment. China SCE Group will therefore be in a more favorable position to capture business development opportunities that may arise in the future; and Taking into account the current liquidity position of China SCE Group and prevailing financing conditions, refinancing through obtaining additional external borrowings from third parties may not be feasible. In addition, similar to extending the loan, this would create an additional interest burden and adversely affect the leverage position of China SCE Group. From the perspective of the SCE CM Group, the transaction ensures the timely and proper recovery of the amounts advanced under the amended loan agreement and the interest income accrued thereon on or before the maturity date in the form of equivalent assets, and effectively eliminates the associated credit risk. In evaluating the settlement options, the directors of SCE CM have taken into account that China SCE Group currently has a limited balance of cash and cash equivalents and is in a net liability position, and has encountered difficulties in meeting its payment obligations in respect of various senior notes issued by China SCE and term loan facilities provided by external lenders. There is uncertainty as to whether China SCE Group will have sufficient financial resources to fully settle the debt through cash settlement when the debt becomes due. The directors of SCE CM consider that it is appropriate and preferable to settle the debt by accepting the set-off against the consideration, so as to avoid any potential discount or delay in payment. In addition, through the acquisition of the target shares, the SCE CM Group can expand its existing property investment business by acquiring the additional commercial properties owned by the target group. The SCE CM Group will not only be able to enhance its profitability, but will also be able to capture the growth and profitability potential of the target group (in particular, the commercial properties held by it). Among the properties of China SCE Group, the directors of SCE CM selected the commercial properties held by the target group as the acquisition target because such properties have been mortgaged to the lender as security for the loan and are designated for settling the debt in the event that the borrower fails to perform any payment obligations under the amended loan agreement; and the SCE CM Group has been providing management and operation services for such commercial properties and has already had a certain degree of participation in and familiarity with their operations, and will be able to utilize such commercial properties promptly and effectively after completion, with the change in ownership structure under the transaction causing minimal disruption to their daily operations. After completion, the SCE CM Group's plan is to generate rental income from such commercial properties.