China Coal Energy : CONNECTED TRANSACTIONS-CAPITAL I...

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

(Stock Code: 01898) CONNECTED TRANSACTIONS CAPITAL INCREASE TO PINGSHUO INDUSTRIAL COMPANY AND PROPOSED AMENDMENTS TO THE ARTICLES OF ASSOCIATION AND THE RULES OF PROCEDURES OF THE BOARD OF THE COMPANY Summary

The Board of Directors is pleased to announce, on 27 October 2017, Pingshuo Group and Equipment Company, subsidiaries of the Company, entered into a Capital Increase Agreement with China Coal Group, the controlling shareholder of the Company, pursuant to which, Pingshuo Industrial Company, a wholly-owned subsidiary of China Coal Group, intends to increase its capital by RMB1,571.3672 million, and Pingshuo Group and Equipment Company intend to have an equity participation in Pingshuo Industrial Company with assets, equity interests and debts. The intended capital contribution scope of Pingshuo Group includes the Subject Assets Contemplated to be Contributed by Pingshuo Group and the 80% equity interest of Explosion Equipment Company with the aggregate appraised value of RMB1,159.2639 million as at the Valuation Reference Date. The intended capital contribution scope of Equipment Company includes the net assets of Pingshuo Maintenance Lease Centre and the 60% equity interest of Huayu Maintenance Company (the aggregate appraised value amounting to RMB112.1033 million as at the Valuation Reference Date) and the debts of RMB300 million claimed by Equipment Company to Pingshuo Maintenance Lease Centre, totalling to RMB412.1033 million. Following completion of the capital increase, China Coal Group, Pingshuo Group and Equipment Company will hold the 70.98%, 21.41% and 7.61% equity interest of Pingshuo Industrial Company after the capital increase respectively. After completion of the capital increase, Explosion Equipment Company and Huayu Maintenance Company will cease to be subsidiaries of the Company and will become subsidiaries of the Target Company.

LISTING RULES IMPLICATIONS

The Transactions under the Capital Increase Agreement will be conducted between members of

the Group and members of the Parent Group. The Parent is the controlling shareholder of the Company and a connected person of the Company. The relevant members of the Parent Group are all associates of the Parent and are therefore connected persons of the Company as defined under the Hong Kong Listing Rules. As such, the Transactions contemplated under the Capital Increase Agreement constitute connected transactions of the Company.

The capital contribution to the Target Company by Pingshuo Group and Equipment Company with assets, equity interests and debts contemplated under the Capital Increase Agreement and obtainment of the equity interests of the Target Company constitute acquisitions and disposals at the same time under the Hong Kong Listing Rules. In accordance with the requirements of aggregation of Rule 14A.81 of the Hong Kong Listing Rules, such acquisitions contemplated shall be aggregated with the Previous Acquisition Transaction and the Previous Disposal Transactions. As the percentage ratios exceed 0.1% but are less than 5%, the Transactions are subject to the reporting and announcement requirements, but are exempted from the independent shareholders' approval requirements under the Hong Kong Listing Rules.

DIRECTORS' CONFIRMATION

Mr. Li Yanjiang, Mr. Peng Yi, Mr. Liu Zhiyong and Mr. Du Ji'an, also directors or senior management of the Parent, are deemed to have material interest in the Transactions, and thus have abstained from voting on the relevant resolutions at the Board meeting. Save as mentioned above, none of the other directors has a material interest in the Transactions.

The directors (including the independent non-executive directors) are of the view that the Capital Increase Agreement was entered into on normal commercial terms, and although the Transactions thereunder are not in the ordinary and usual course of business of the Company, the terms and conditions therein are fair and reasonable and in line with the overall development strategy of the Group as well as in the interests of the Company and its shareholders as a whole.

1. CAPITAL INCREASE TO PINGSHUO INDUSTRIAL COMPANY
2. Introduction

In order to strengthen the professional management of equipment maintenance, auxiliary production and logistics services of the Pingshuo mining area, revitalize the idle assets, improve the operational efficiency and achieve coordinated development, the Company intends to have an equity participation in Pingshuo Industrial Company with partial assets and equity interests involving in equipment maintenance, auxiliary production and logistics services.

On 27 October 2017, Pingshuo Group and Equipment Company entered into a Capital Increase Agreement with Pingshuo Industrial Company, pursuant to which, the intended capital contribution scope of Pingshuo Group includes the Subject Assets Contemplated to be Contributed by Pingshuo Group and the 80% equity interest of Explosion Equipment Company with the aggregate appraised value of RMB1,159.2639 million as at the Valuation Reference Date. The intended capital contribution scope of Equipment Company includes the net assets of Pingshuo Maintenance Lease Centre and the 60% equity interest of Huayu Maintenance Company (the aggregate appraised value amounting to RMB112.1033 million as at the Valuation Reference Date) and the debts of RMB300

million claimed by Equipment Company to Pingshuo Maintenance Lease Centre, totalling to RMB412.1033 million. Following completion of the capital increase, China Coal Group, Pingshuo Group and Equipment Company will hold the 70.98%, 21.41% and 7.61% equity interest of Pingshuo Industrial Company after the capital increase respectively. After completion of the capital increase, Explosion Equipment Company and Huayu Maintenance Company will cease to be subsidiaries of the Company and will become subsidiaries of the Target Company, namely Pingshuo Industrial Company.

1. Capital Increase Agreement Date: 27 October 2017 Parties: 1. China Coal Group;

2. Pingshuo Group;

3. Equipment Company.

Capital increase price and basis:

The shareholders of Pingshuo Industrial Company decided to increase the capital of Pingshuo Industrial Company by RMB1,571.3672 million. The aggregate capital increase price was determined after arm's length negotiation among the parties with reference to the bases such as the appraised value of the Target Company before the capital increase and the appraised value of the assets and equity interests contemplated to be contributed by Pingshuo Group and Equipment Company.

The detailed information of the appraised value of the Target Company before the capital increase and the appraised value of the assets and equity interests contemplated to be contributed by Pingshuo Group and Equipment Company includes: the appraised value of 100% equity interest in Pingshuo Industrial Company as at the Valuation Reference Date of RMB3,864.0753 million, as stated in the valuation report issued

by China United Asset Appraisal Group Limited (中聯資產評

估集團有限公司) based on the assets-based approach; the appraised value of the Subject Assets Contemplated to be Contributed by Pingshuo Group as at the Valuation Reference

Date of RMB983.1420 million, as stated in the valuation report issued by China United Asset Appraisal Group Limited (中聯 資產評估集團有限公司) based on the assets-based approach;

and the appraised value of 100% equity interest in Explosion Equipment Company, total assets of Pingshuo Maintenance Lease Centre and 100% equity interest in Huayu Maintenance Company as at the Valuation Reference Date of RMB220.1524 million, RMB-1.2738 million and RMB188.9619 million, respectively, as stated in the three valuation reports issued by

China United Asset Appraisal Group Limited (中聯資產評估

集團有限公司) based on the assets-based approach.

Subject matter and consideration:

The intended capital contribution scope of Pingshuo Group includes the Subject Assets Contemplated to be Contributed by Pingshuo Group and the 80% equity interest of Explosion Equipment Company at a consideration of RMB1,159.2639 million. The intended capital contribution scope of Equipment Company includes the net assets of Pingshuo Maintenance Lease Centre and the 60% equity interest of Huayu Maintenance Company and the debts of RMB300 million claimed by Equipment Company to Pingshuo Maintenance Lease Centre at a consideration of RMB412.1033 million.

Shanxi China Coal Pingshuo Yuchen Co., Ltd. (山西中煤平朔 宇辰有限公司 ), a wholly-owned subsidiary of Pingshuo Industrial Company, has transferred the 9% equity interests of

Explosion Equipment Company held to China Poly Group Corporation ( 中國保利集團公司 ) without compensation

subsequent to the Valuation Reference Date, the net assets value of Pingshuo Industrial Company upon the Transactions amounted to RMB3,844.2616 million. Therefore, the shareholding proportion of Pingshuo Group, Equipment Company and China Coal Group in the Target Company, namely Pingshuo Industrial Company, will be 21.41%, 7.61% and 70.98% respectively following completion of the Transactions.

Effective conditions: As agreed and confirmed by the parties, each of the Capital

Increase Agreement shall take effect subject to the satisfaction of the following conditions:

1. legal representatives or authorized representatives of the parties have signed and affixed their respective company seals on the Capital Increase Agreement;

2. the internal approval procedures of the relevant parties have been performed and completed and the Transactions have been approved thereby;

3. China Coal Energy has approved the Transactions; and

4. China Coal Group has approved the Transactions.

1. Assets, Equity Interests and Debts to be Contributed by Pingshuo Group and Equipment Company
2. Equity Interests and Assets Contemplated to be Contributed by Pingshuo Group