Build King : Continuing Connected Transactions

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BUILD KING HOLDINGS LIMITED

(Incorporated in Bermuda with limited liability)

(Stock Code: 00240) CONTINUING CONNECTED TRANSACTIONS FRAMEWORK AGREEMENT

On 24 November 2017, the Company and Road King entered into the Framework Agreement in respect of the engagement of member of the Group, subject to successful tender, as the main contractor for the construction works of the Road King Group's present and future property development projects in Hong Kong.

LISTING RULES IMPLICATIONS

As at the date of this announcement, the Company is a non-wholly owned subsidiary of Wai Kee. As at the date of this announcement, Wai Kee (through its subsidiaries) is interested in 690,525,033 Shares, representing approximately 55.60% of the Company's issued share capital, and is interested in 311,320,428 shares of Road King, representing approximately 41.61% of the issued share capital of Road King. Accordingly, Wai Kee and Road King are connected persons of the Company under the Listing Rules, the transactions contemplated under the Framework Agreement constitute continuing connected transactions of the Company under the Listing Rules.

As the applicable percentage ratios (as defined in the Listing Rules) in respect of the annual caps for the transactions under the Framework Agreement exceed 5%, the Framework Agreement is subject to the reporting, annual review, announcement and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

CIRCULAR

A circular which contains, among other things, further details of the transactions contemplated under the Framework Agreement, the letters from the Independent Board Committee and the Independent Financial Adviser together with a notice of the SGM to be convened by the Company to approve the transactions contemplated under the Framework Agreement, is expected to be despatched to the Shareholders on or about 29 November 2017.

BACKGROUND INFORMATION AND REASONS FOR AND BENEFITS OF THE ENTERING INTO OF THE FRAMEWORK AGREEMENT

The Company is an investment holding company and its subsidiaries are principally engaged in the undertaking of construction projects in Hong Kong and the PRC and are also engaged in environmental and waste management and marine engineering.

Road King is principally engaged in investment in, and development, operation and management of, property development in the PRC and more recently in Hong Kong, with a focus in residential developments, and is evaluating increased investment in commercial development properties. The Road King Group also invests in and manages, through joint ventures, expressways in the PRC and possibly elsewhere in South East Asia should suitable opportunities arise.

The Company notes that the Road King Group has been building up its property development portfolio in Hong Kong and will invite contractors to submit tender for contracts for its construction work from time to time. As part of the ordinary course of business of the Group, the Group may participate in future tenders of the Road King Group for main contract(s) in respect of the construction works for the Road King Group's property development projects in Hong Kong. To ensure compliance with Chapter 14A of the Listing Rules, the Directors proposed to enter into the Framework Agreement and seek approval from the Independent Shareholders for the Framework Agreement in order to facilitate the conduct of transactions should the Group be awarded new contracts by the Road King Group.

The terms of the Framework Agreement were arrived at after arm's length negotiations between the parties. Members of the Group will enter into separate construction contracts with the members of the Road King Group upon successful tender for each project.

THE FRAMEWORK AGREEMENT

The principal terms of the Framework Agreement are set out below:

Date : 24 November 2017 Parties : (1) the Company

1. Road King

   Subject matter : The Road King Group may from time to time invite relevant

   member(s) of the Group to submit tender to act as the main contractor for the construction works of the Road King Group's present and future property development projects in Hong Kong. Subject to successful tender, the Road King Group will enter into construction contract(s) with the relevant member(s) of the Group, which will be:

2. in writing and in accordance with the terms and conditions set out in the tender;

3. determined in the usual and ordinary course of business of the Group and the Road King Group on normal commercial terms (as defined in the Listing Rules); and

4. in compliance with all applicable provisions of the Listing Rules, the Framework Agreement and the respective construction contracts for the engagement of members of the Group as main contractor(s) in respect of the existing and potential development projects of the Road King Group.

Term : An initial term of three years starting from 1 January 2018 (subject to the approval of the Framework Agreement to be granted by resolution of the Independent Shareholders at the SGM), unless terminated earlier in accordance with the terms and conditions thereunder.

Subject to compliance with the requirements of the applicable Listing Rules and other applicable laws and regulations at the relevant time or, alternatively, any waivers obtained from the strict compliance with such requirements, upon the expiry of the initial term or subsequent renewal term, the Framework Agreement is automatically renewed for a successive period of three (3) years thereafter (or such other period permitted under the Listing Rules) unless a party under the Framework Agreement gives a 30 days' prior written notice to the other party to terminate the Framework Agreement.

Notwithstanding the above, the Framework Agreement may be terminated at any time by the written agreement of the Company and Road King.

Conditions : The Framework Agreement is conditional on:

1. the Independent Shareholders of Road King having approved the transactions contemplated under the Framework Agreement at the special general meeting of Road King in accordance with the Listing Rules; and

2. the Independent Shareholders having approved the transactions contemplated under the Framework Agreement at the SGM in accordance with the Listing Rules.

PRICING BASIS OF THE GROUP'S SUBMISSION OF TENDER

The Group will need to go through tender process before being appointed as a main contractor in respect of the Road King Group's property development projects in Hong Kong. After receipt of tender invitation, the Group will collect and check tender documents and drawings. If the Group decides to proceed with the tender after reviewing tender documents, a tendering team, which comprises staff from estimating department (responsible for cost estimation and dealing with issues in relation to construction contracts), engineering department (responsible for handling design, drawings and technical aspects) and project management department (responsible for overall planning and execution of project), will be set up to handle the tender and prepare cost estimate of the construction works. The team members of the tendering team are mostly engineers or quantity surveyors with over ten years of experience in their relevant expertise area.

General pricing policy

In pricing each tender, regardless of the nature of services required and of whether the transaction is to be entered into with connected persons of the Group or independent third parties, the Group will:

1. estimate the potential costs of the construction works ("project costs") to which the project relates, which is the aggregate of the direct costs, including labour cost, plant and machinery cost, construction materials cost and sub-contractor fees, estimated by reference to the considerations such as the nature of the project (including the location and size of project), complexity, method and program to be used for the construction works, possible technical issues that may need to be addressed, timing for delivery and late delivery penalty structure, the pricing structure which would typically be specified in each tender invitation document (including lump sum or variable pricing/price adjustment structures), performance bond requirements, and availability of the resources to the Group, including the staff/labour, specialist contractors, machinery resources and project cashflow; and

2. estimate a potential profit margin within the range of what the Group would in its experience in the industry charge for projects of similar specifications for independent third party employers.

The tender price is expected to comprise the construction costs for the entire project. The tender price may be a fixed sum or variable charging formula or a combination of both, depending on the terms of the tender invitation. The estimating manager, as a member of the tendering team, will prepare a cost estimate of the construction works according to the requirements of the tender documents. Tender progress meetings with the tendering team may be conducted throughout the estimating process when required. After having the potential project costs and the proposed tender price estimated, a management meeting will be held to provide senior management with cost estimation and other related documents. The senior management of the Group, comprising one director from civil and building divisions, one director in charge of business development, one director in charge of contract administration and management, and the chairman of the Board, will review the potential project costs estimate, any potential margin and the proposed tender price, and determine whether or not the tender price (including the pricing structure) should be modified having regard to various factors including the specification of the project, the potential risks associated with the project, general business environment and the perceived competitiveness of the tender price and, with respect to projects of the Road King Group, whether the tender prices are comparable to those offered to independent third party employers. In determining the profit margin of potential projects, the Company will consider factors including, but not limited to, the existing workload and the capacity of the Group, future price trend of various components of project costs, competitiveness of tender price, reliability and reputation of the potential clients and strategic importance of the tender to the future growth of the Group. Generally, the Group's gross profit margin in its tenders for building construction projects would be within the range of 2% to 7% (depending on the complexity of the construction projects).