Yingde Gases : Announcements and Notices - EGM Requisition by Rongton Grounds for the Proposed Removal of Mr. Zhongguo Sun and Mr. Strutt and Request for Mr. Zhongguo Sun and Mr. Strutt to Respond

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Yingde Gases Group Company Limited

盈德氣體集團有限公司

(Incorporated in the Cayman Islands with limited liability)

(Stock Code: 02168) EGM REQUISITION BY RONGTON GROUNDS FOR THE PROPOSED REMOVAL OF MR. ZHONGGUO SUN AND MR. STRUTT AND REQUEST FOR MR. ZHONGGUO SUN AND MR. STRUTT TO RESPOND

This announcement is made by Yingde Gases Group Company Limited (the "Company") pursuant to Rule 13.09 of the Rules Governing the Listing of Securities (the "Listing Rules") on The Stock Exchange of Hong Kong Limited (the "Stock Exchange") and the Inside Information Provisions (as defined in the Listing Rules) under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the laws of Hong Kong) (the "SFO").

1. EGM REQUISITION BY RONGTON

   On 19 January 2017, the Company received a notice (the "Requisition Notice") from Rongton Investments Limited ("Rongton") controlled by Mr. ZHAO Xiangti ("Mr. Zhao"), the chairman and executive director of the Company.

   In the Requisition Notice, Rongton required an extraordinary general meeting ("EGM") to be convened for shareholders to consider, if thought fit, to pass the following ordinary resolutions:

2. THAT ZHONGGUO SUN ("Mr. Sun") be and is hereby removed as a director of the Company.

3. THAT TREVOR RAYMOND STRUTT ("Mr. Strutt") be and is hereby removed as a director of the Company.

   The Company is now in the course of obtaining Cayman Islands legal advice in respect of the procedural regularity of the Requisition Notice. Upon obtaining Cayman Islands legal advice, the Company would comply with the relevant requirements under the articles of association of the Company and will make further announcement in due course.

4. GROUNDS FOR THE PROPOSED REMOVAL OF MR. SUN AND MR. STRUTT

   The Requisition Notice has set out the following grounds from Rongton for removal of Mr. Sun and Mr. Strutt:
5. Unsatisfactory financial performance and share price performance and deteriorating debt structure

   Rongton has stated in the Requisition Notice that it is disappointed with the performance of the Company during the past years:

   Year ended 31 Year ended 31 Six months ended 30 June 2016 Year ended 31 (Six months ended December 2013 December 2014 December 2015 30 June 2015) Value Weighted Average Share Price ("VWAP") (Note 1) Basic earnings per share (Note 2) Net Profit Margin (Note 3) Return on Assets (Note 4) Finance costs (Note 5)

   HK$7.885 HK$6.723 HK$4.748 HK$2.96

   (HK$6.118)

   RMB0.5 RMB0.5 RMB0.3 RMB0.216

   (RMB0.232)

   13.2% 11.7% 6.8% 9.3%

   (11.0%)

   5.8% 5.2% 2.7% 2.3%

   (5.0%)

   RMB382 million RMB520 million RMB968 million RMB443 million

   (RMB306 million)

   Debt Ratio (Note 6)

   62.4% (as at

   31 December

   2013)

   65% (as at

   31 December

   2014)

   64.9% (as at

   31 December

   2015)

6. % (as at

   30 June 2016)

   (64.6% (as at

   30 June 2015))

   Notes:

7. VWAP = INumber of Shares Traded X Share Price

   Total Shares Traded

8. The dramatic fall in earnings per share is mainly attributable to foreign exchange loss as a result of depreciation of RMB against USD. With the Company's persistent reliance on USD-denominated debt financing without due recourse to equity financing, the foreign exchange loss might sustain or even deteriorate due to the weakening of RMB.

9. Net profits after tax attributable to equity shareholders of the Company divided by revenue.

10. The trailing 12-month net profit after tax attributable to equity shareholders of the Company divided by the average balance of total assets at the beginning and the end of each relevant period.

11. With the general downgrading of the credit rating and the interest rate hike of USD-denominated debt financing, the Company's finance costs might continue to increase.

12. Total liabilities divided by total assets.

Although the Company's net operating cash flow was improving: RMB955 million (2013), RMB925 million (2014) and RMB1,374 million (2015). The improvements have been almost offset by the notable increases in finance costs of RMB382 million (2013), RMB520 million (2014) and RMB968 million (2015).

The net current liabilities (current liabilities minus current assets) as of 30 June 2016 amounted to RMB1,338 million.

13. The discretionary bonus paid to Mr. Sun and Mr. Strutt was not in line with the share price performance or basic earnings per share in the recent year of 2015 Year ended 31 December 2014 Year ended 31 December 2015

    Value Wieghted Average Share Price HK$6.723 HK$4.748 Basic earnings per share RMB0.5 RMB0.3 Discretionary bonus to Mr. Sun RMB3,240,000 RMB4,691,000 Discretionary bonus to Mr. Strutt RMB1,007,000 RMB2,031,000 Discretionary bonus to Mr. Zhao Nil Nil

    While Mr. Sun and Mr. Strutt enjoyed a considerable rise in discretionary bonus in 2015, Mr. Sun and Mr. Strutt initiated a general 25% pay cut effective from February 2015 for most of the employees of the Group whose monthly income is higher than RMB15,000, and also to stop paying any bonus for most of the employees of the Group during 2014 and 2015.

14. Mr. Sun's interest in Astrotec which is engaged in competing business as revealed in a judgment of Hong Kong High Court

15. It currently transpired that Mr. Sun has interest in competing business through Astrotec Company Limited ("Astrotec"), a company which was engaged in business competing with the Company's principal business. According to a judgment of HCCW 282/2010 delivered by the Court of First Instance of Hong Kong (the "Court") on 31 January 2013 ("Judgment"), the Court has concluded as a finding of fact that a lady named Ms. Yu Qi (虞琪) ("Madam Yu") held the interest in Astrotec as trustee for Mr. Sun to certain extent, and that Mr. Sun was the real boss of Astrotec at least up to September 2008. Mr. Sun's said relationships with Madam Yu and the beneficial interest in and management control over Astrotec were never disclosed in the Company's prospectus or subsequent annual reports. Further, Mr. Sun has confirmed to the Stock Exchange in previous occasions that he ceased to have any interest in Astrotec from 22 March 2006 which was contrary to the finding of facts in the Judgment.

In November 2013 and after the Judgment was delivered in January 2013, Mr. Sun, in breach of his fiduciary duty towards the Company, failed to disclose his apparent interest in Astrotec when he initiated and was actively involved in the proposed acquisition ("Proposed Acquisition") of Astrotec, even though the Proposed Acquisition failed to materialize since the other members of the board of the directors of the Company were not satisfied with the due diligence results.

According to the Judgment, Mr. Sun provided a confirmation letter as supporting evidence for Madam Yu. There is no question Mr. Sun must have knowledge of the Judgment, which rules:

"14.It is common ground that the Company [i.e. Astrotec] is involved in the industrial gas supply business on the Mainland

22. Significantly, as will be seen later, it also refers to the fact that the people behind Baslow were led by a person called「孫忠國」(Sun Zhongguo) ("Mr. Sun")