Xinchen China Power : Announcements and Notices - Bba Compliance Agreement - Renewal of Term and Annual Caps

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.

XINCHEN CHINA POWER HOLDINGS LIMITED

新 晨 中 國 動 力 控 股 有 限 公 司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 1148)

BBA COMPLIANCE AGREEMENT -

RENEWAL OF TERM AND ANNUAL CAPS

BBA COMPLIANCE AGREEMENT - RENEWAL OF TERM AND ANNUAL CAPS

Reference is made to the announcements of the Company dated 23 May 2014, 21 January 2015 and 13 September 2016 and the circulars of the Company dated 28 May 2014, 18 February 2015 and 12 October 2016 in relation to, among others, the transactions contemplated under the BBA Compliance Agreement which constitute continuing connected transactions for the Company under the Listing Rules.

The second term of the BBA Compliance Agreement commenced on 17 June 2017 and, upon its expiry on 16 June 2020, will be automatically renewed for a further term of three years up to and including 16 June 2023 subject to the compliance with the relevant requirements of the Listing Rules. The existing annual caps in respect of the second term of the BBA Compliance Agreement will expire on 31 December 2019.

The Board wishes to seek the Independent Shareholders' approval for (i) the third term of the BBA Compliance Agreement; and (ii) the Proposed Annual Caps in respect of the transactions contemplated under the BBA Compliance Agreement for each of the three years ending 31 December 2022.

LISTING RULES IMPLICATIONS

As at the date of this announcement, Brilliance China, a controlling shareholder of the Company, is indirectly interested in 50% of the issued share capital of BBA. As BBA is an associate of Brilliance China, it is a connected person of the Company under Chapter 14A of the Listing Rules. Therefore, the transactions contemplated under the third term of the BBA Compliance Agreement constitute continuing connected transactions for the Company under Chapter 14A of the Listing Rules.

1

As the applicable percentage ratios in respect of the Proposed Annual Caps of the transactions contemplated under the BBA Compliance Agreement are higher than 5% on an annual basis and each Proposed Annual Cap exceeds HK$10 million, the third term of the BBA Compliance Agreement and the Proposed Annual Caps are subject to the reporting, announcement, annual review and Independent Shareholders' approval requirements under Chapter 14A of the Listing Rules.

GENERAL

The Independent Board Committee, comprising Mr. Chi Guohua, Mr. Wang Jun, Mr. Huang Haibo and Mr. Wang Songlin, being the independent non-executive Directors, has been established to advise the Independent Shareholders as to (i) the third term of the BBA Compliance Agreement; and (ii) the Proposed Annual Caps.

The Independent Financial Adviser has been appointed to advise the Independent Board Committee and the Independent Shareholders in respect of (i) the third term of the BBA Compliance Agreement; and (ii) the Proposed Annual Caps.

A circular containing, amongst other things: (i) details of the BBA Compliance Agreement;

1. the letter from the Independent Board Committee, setting out its recommendations in connection with the third term of the BBA Compliance Agreement and the Proposed Annual Caps; (iii) the letter from the Independent Financial Adviser containing its advice to the Independent Board Committee and the Independent Shareholders in connection with the third term of the BBA Compliance Agreement and the Proposed Annual Caps; and (iv) a notice to the Shareholders convening the Extraordinary General Meeting for the Independent Shareholders to consider and, if thought fit, approve the third term of the BBA Compliance Agreement and the Proposed Annual Caps, will be despatched to Shareholders on or before 11 October 2019.

BBA COMPLIANCE AGREEMENT - RENEWAL OF TERM AND ANNUAL CAPS

Reference is made to the announcements of the Company dated 23 May 2014, 21 January 2015 and 13 September 2016 and the circulars of the Company dated 28 May 2014, 18 February 2015 and 12 October 2016 in relation to, among others, the transactions contemplated under the BBA Compliance Agreement which constitute continuing connected transactions for the Company under the Listing Rules.

The second term of the BBA Compliance Agreement commenced on 17 June 2017 and, upon its expiry on 16 June 2020, will be automatically renewed for a further term of three years up to and including 16 June 2023 subject to the compliance with the relevant requirements of the Listing Rules. The existing annual caps in respect of the second term of the BBA Compliance Agreement will expire on 31 December 2019.

2

The Board wishes to seek the Independent Shareholders' approval for (i) the third term of the BBA Compliance Agreement; and (ii) the Proposed Annual Caps in respect of the transactions contemplated under the BBA Compliance Agreement for each of the three years ending 31 December 2022.

The principal terms of the BBA Compliance Agreement are set out below:

Date: 23 May 2014

Parties: BBA, the Company and Mianyang Xinchen

Nature of the Continuing Connected Transactions

Pursuant to the BBA Compliance Agreement, the parties have agreed on certain principles for the following transactions:

1. the Group will sell to BBA or its subsidiaries and BBA or its subsidiaries will purchase from the Group engine parts and components and raw materials for manufacturing engines and engine parts and components from time to time;
2. BBA or its subsidiaries will sell to the Group and the Group will purchase from BBA or its subsidiaries engine parts and components and raw materials for manufacturing engine parts and components from time to time; and
3. BBA or its subsidiaries will provide to the Group consulting and advisory services relating to engines or engine parts and components from time to time.

Term

The initial term of the BBA Compliance Agreement was for three (3) years from the effective date of the BBA Compliance Agreement (inclusive of the first day and the last day of the term). Upon the expiry of the initial term, the BBA Compliance Agreement will be automatically renewed for successive periods of three (3) years subject to compliance with the requirements of the Listing Rules (including the independent shareholders' approval requirement).

Operational Agreements and Purchase Orders

The parties may enter into separate operational agreements and purchase orders from time to time which contain particulars pertaining to the sale and purchase of, among others, engine parts and components and raw materials for manufacturing engines and engine parts and components (as the case may be) and the provision of related consulting and advisory services (including provisions relating to the price, quantity, quality and payment method). The terms of these operational agreements and purchase orders must be consistent with and subject to the terms of the BBA Compliance Agreement, on normal commercial terms and on an arm's length basis.

3

Payment Terms

BBA shall issue an invoice within the first 10 days of each month for the engine parts and components delivered during the previous month, and then payment shall be made by Mianyang Xinchen within 45 days after receiving the invoice. With respect to the provision of technical consulting and advisory services, BBA shall issue a quarterly invoice to Mianyang Xinchen based on a list specifying the working time and the related costs, and then payment shall be made by Mianyang Xinchen within 45 days after receiving the invoice.

Mianyang Xinchen shall issue an invoice within the first 10 days of each month for the engine parts and components delivered during the previous month. BBA shall make the payment within 45 days calculated from the 25th day of the month when it receives the invoice from Mianyang Xinchen.

Proposed Annual Caps

A summary of the Proposed Annual Caps is set out below:

			Proposed annual caps
		For the	For the	For the
		year ending	year ending	year ending
Details of the relevant continuing	31 December	31 December	31 December
connected transactions	2020	2021	2022
		(RMB'000)	(RMB'000)	(RMB'000)
(1)	Sale of engine parts and components and raw	117,000	123,000	127,000
	materials for manufacturing engine parts and
	components and the provision of the related
	consulting and advisory services by BBA or its
	subsidiaries to the Group
(2)	Sale of engine parts and components and raw	917,000	963,000	992,000
	materials for manufacturing engines and engine
	parts and components by the Group to BBA or its
	subsidiaries

4

Basis of the Proposed Annual Caps

The above Proposed Annual Caps have been determined primarily based on the following:

1. the estimated volume of engine parts and components and raw materials for manufacturing engine parts and components required by the Group, the estimated volume of engine parts and components and raw materials for manufacturing engines and engine parts and components by BBA and its subsidiaries, with reference to the expected market demand for products of BBA;
2. the estimated volume of engine parts and components to be exported to BMW AG;
3. the designed annual production capacity of the Group and the planned upgrade of and expansion in the production capacity of the Group to produce crankshafts;
4. the expected unit prices for the engine parts and components and raw materials for manufacturing engines and engine parts and components (as the case may be); and
5. a buffer of the expected transaction amounts has been included in determining the amount of the Proposed Annual Caps to cater for the fluctuation in foreign exchange rate and uncertainty of change in transaction volume, transaction price and type of products to be transacted and the procurement of related consulting and advisory services from BBA or its subsidiaries in relation to the production of the engine parts and components to be supplied to BBA when necessary.

Existing caps and historical transaction amounts

					For the	For the eight
					year ending	months ended
Details of the relevant continuing connected	For the year ended	For the year ended	31 December	31 August
transactions	31 December 2017	31 December 2018	2019	2019
	Existing Cap	Actual amount	Existing Cap	Actual amount	Existing Cap	Actual amount
	(RMB'000)	(RMB'000)	(RMB'000)	(RMB'000)	(RMB'000)	(RMB'000)
(1) Sale of engine parts and components and	662,998	164,457	588,051	179,722	556,362	36,103
raw materials for manufacturing engine
parts and components and the provision
of the related consulting and advisory
services by BBA or its subsidiaries to the
Group
(2) Sale of engine parts and components and	575,200	463,300	578,975	577,930	602,244	406,013
raw materials for manufacturing engines
and engine parts and components by the
Group to BBA or its subsidiaries

5