SUMMIT ASCENT HOLDINGS LIMITED · 2017-03-02 · THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR...

THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION

If you are in any doubt as to any aspect of this circular or as to the action to be taken, you should consult your stockbroker

or other registered dealer in securities, bank manager, solicitor, professional accountant or other professional adviser.

If you have sold or transferred all your securities in Summit Ascent Holdings Limited, you should at once hand this

circular, together with the enclosed form of proxy, to the purchaser or to the transferee or to the bank, stockbroker or other

agent through whom the sale was effected for transmission to the purchaser or to the transferee.

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for

the contents of this circular, 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 circular.

凱升控股有限公司 H o l d i n g s L i m i t e d

SUMMIT ASCENT HOLDINGS LIMITED(Incorporated in Bermuda with limited liability)

(Stock Code: 102)

(1) MAJOR AND CONNECTED TRANSACTIONIN RELATION TO PROPOSED INVESTMENT IN

A GAMING AND RESORT DEVELOPMENT PROJECT IN THE RUSSIAN FEDERATION

AND (2) GRANT OF SHARE OPTIONS TO A DIRECTOR AND CONTROLLING SHAREHOLDER OF THE COMPANY

Financial adviser to Summit Ascent Holdings Limited in respect of the Proposed Investment

SOMERLEY LIMITED

Independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Proposed Investment

A letter from the Independent Board Committee containing its advice and recommendation to the Independent Shareholders

in respect of the Proposed Investment is set out on page 60 of this circular. A letter from Odysseus containing its advice

and recommendation to the Independent Board Committee and the Independent Shareholders in respect of the Proposed

Investment is set out on pages 61 to 83 of this circular.

A notice convening the SGM of Summit Ascent Holdings Limited to be held at 38th Floor, The Centrium, 60 Wyndham

Street, Central, Hong Kong on Thursday, 17 October 2013 at 11:00 a.m. is set out on pages SGM-1 to SGM-3 of this

circular. Whether or not you are able to attend the meeting in person, you are required to complete the enclosed form of

proxy in accordance with the instructions printed thereon and return it to the branch share registrar of the Company in

Hong Kong, Computershare Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East,

Wanchai, Hong Kong as soon as possible and in any event not later than 48 hours before the time appointed for holding the

SGM or any adjournment thereof. Completion and return of the form of proxy will not preclude you from attending and

voting in person at the SGM should you so wish.

30 September 2013

CONTENTS

– i –

Page

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60

Letter from Odysseus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Appendix I – Financial information of the Group . . . . . . . . . . . . . . . . . . . . . . . I-1

Appendix IIA – Accountants’ report on Oriental Regent . . . . . . . . . . . . . . . . . . . . IIA-1

Appendix IIB – Accountants’ report on FGCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . IIB-1

Appendix III – Management discussion and analysis of the Target Group . . . . . III-1

Appendix IV – Unaudited pro forma financial information

of the Enlarged Group . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . IV-1

Appendix V – Property valuation of the Target Group . . . . . . . . . . . . . . . . . . . . V-1

Appendix VI – General information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . VI-1

Notice of SGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . SGM-1

DEFINITIONS

– 1 –

In this circular, the following expressions shall, unless the context requires otherwise, have

the following meanings:

“Adjustment Event” the adjustment event described in paragraph headed

“3. Sale and purchase of the Firich Sale Shares” in the letter

from the Board of this circular below

“Amended and Restated

Preliminary Agreement”

the amended and restated agreement to the Preliminary

Agreement dated 10 July 2013 entered into among the

Company, New Crescent and Elegant City in respect of,

among others, the Proposed Investment and to amend,

restate and supersede the Preliminary Agreement in its

entirety

“associate(s)” has the meaning ascribed to it under the Listing Rules

“BVI” the British Virgin Islands

“CEO” chief executive officer

“CFO” chief financial officer

“Company” Summit Ascent Holdings Limited, a company incorporated

in Bermuda with limited liability and having its Shares

listed on the main board of the Stock Exchange

“Completion” completion of the Proposed Investment

“Completion Date” the date of Completion

“connected person(s)” has the meaning ascribed to it under the Listing Rules

“controlling shareholder” has the meaning ascribed to it under the Listing Rules

“Deputy CEO” deputy chief executive officer

“Diamond Fortune” Diamond For tune Ho ld ings L imi t ed , a company

incorporated in the BVI with limited liability

“Director(s)” the director(s) of the Company from time to time

DEFINITIONS

– 2 –

“Elegant City” Elegant City Group Limited, a company incorporated in the

BVI with limited liability

“Enlarged Group” the Group as enlarged by the Proposed Investment

“FEC” Firich Enterprises Co., Ltd, a company incorporated

with limited liability in Taiwan and listed on the GreTai

Securities Market in Taiwan

“FGCE” First Gambling Company of the East LLC, a limited

liability company established in Russia

“Firich” Firich Investment Limited, a company incorporated

with limited liability in Mauritius and a wholly-owned

subsidiary of FEC

“Firich Deposit” a n a m o u n t o f U S $13 ,363 ,715 .53 ( e q u iva l e n t t o

approximately RUB426.4 mill ion or approximately

HK$103.6 million), being part of the consideration for the

Firich Sale Shares payable under the Investment Agreement

“Firich Sale Shares” the 19,000 Or ien ta l Regen t Shares , r epresen t ing

approximately 38.8% of the issued share capital of Oriental

Regent immediately following the Firich Sale Shares

Completion and 19% of the enlarged issued share capital

of Oriental Regent upon Completion respectively, to be

purchased by Firich from Elegant City on Firich Sale

Shares Completion

“Firich Sale Shares Completion” completion of the sale and purchase of the Firich Sale

Shares

“Firich Sale Shares Completion

Date”

the date of Firich Sale Shares Completion

“Gaming Authorizations” any gaming or gambling concession, sub-concession,

license, consent, approval, status or regulatory authorization

issued by relevant governmental authorities required to

conduct gaming business in any jurisdiction

DEFINITIONS

– 3 –

“Gaming License” the gaming license awarded to FGCE by the Administration

of the Primorye Region, Russia on 6 October 2011 under

which FGCE has the right to conduct gaming activities in

the IEZ for an indefinite period, which commenced on 22

April 2012

“Gaming Regulators” any department, authority, commission or other body of any

government in any jurisdiction with the power to regulate

businesses engaged in the gaming or gambling industries

“Group” the Company and its subsidiaries from time to time

“Hong Kong” the Hong Kong Special Administrative Region of the

People’s Republic of China

“IEZ” The Integrated Entertainment Zone of the Primorye Region,

Russia

“Independent Board Committee” an independent committee of the Board, comprising all

independent non-executive Directors, namely Mr. Tsui

Yiu Wa, Alec, Mr. Pang Hing Chung, Alfred and Dr. Tyen

Kan Hee, Anthony, established to advise the Independent

Shareholders in respect of the Proposed Investment

“Independent Shareholders” the Shareholders other than Mr. Lawrence Ho and his

associates

“Investment Agreement” the investment and shareholders agreement dated 23 August

2013 entered into among SARL, New Crescent, Firich,

Elegant City and Oriental Regent in respect of the Proposed

Investment

“Kinetic” Kinetic Investments Inc., a company incorporated in the

Seychelles with limited liability

“Kinetic Acquisition Agreement” the agreement dated 26 August 2013 entered into between

Oriental Regent and Kinetic in respect of the purchase from

Kinetic by Oriental Regent of the 50% of the charter capital

of FGCE

DEFINITIONS

– 4 –

“Listing Rules” the Rules Governing the Listing of Securities on the Stock

Exchange

“Latest Practicable Date” 25 September 2013, being the latest practicable date prior

to the printing of this circular for ascertaining certain

information for inclusion in this circular

“Lot 8” a parcel of land identified as Lot 8 situated in the IEZ

“Lot 8 and 9 Lease” the lease in respect of the tenancy of Lot 8 and Lot 9 for a

period of 14 years commencing on 27 July 2011 and ending

on 20 July 2025

“Lot 9” a parcel of land identified as Lot 9 situated in the IEZ, with

a land area of approximately 90,455m2 and total planned

gross floor area of approximately 31,699m2

“Lot 9 Project” the construction and development of the casino and resort

complex on Lot 9

“Macau” the Macao Special Administrative Region of the People's

Republic of China

“Mauritius” The Republic of Mauritius

“Melco” Melco International Development Limited, a company

listed on the main board of the Stock Exchange, being the

holding company of New Crescent

“Mr. Lawrence Ho” or “Mr. Ho” Mr. Ho, Lawrence Yau Lung, Chairman of the Board and a

non-executive director and the controlling shareholder of

the Company

“New Crescent” N ew C r e s c e n t I nve s t m e n t s L i m i t e d , a c o m p a ny

incorporated in the BVI, being a wholly-owned subsidiary

of Melco

DEFINITIONS

– 5 –

“Odysseus” Odysseus Capital Asia Limited, a corporation licensed to

carry out type 6 (advising on corporate finance) regulated

activities under the SFO, being the independent financial

adviser appointed by the Independent Board Committee

to advise the Independent Board Committee and the

Independent Shareholders in respect of the Proposed

Investment

“Options” share options granted or to be granted under the Share

Option Scheme which entitle the holders thereof to

subscribe for Shares

“Oriental Regent” Oriental Regent Limited, a company incorporated in Hong

Kong with limited liability

“Oriental Regent Share(s)” the share(s) of Oriental Regent

“Oriental Regent Shareholder(s)” a party/(ies) to the Investment Agreement which is/(are) a

shareholder(s) of Oriental Regent

“Preliminary Agreement” the preliminary agreement entered into between the

Company and Elegant City on 8 June 2013 in respect of,

among others, the Proposed Investment

“Proposed Investment” the proposed subscription of 46% interest in the enlarged

issued share capital of Oriental Regent by SARL pursuant

to the terms and conditions of the Investment Agreement

“Reorganization” the reorganizat ion descr ibed in paragraph headed

“4. Reorganization” in the letter from the Board of this

circular below

“Russia” The Russian Federation

“SARL” Summit Ascent Russia Limited, a company incorporated in

the BVI, being a wholly-owned subsidiary of the Company

“Seychelles” The Republic of Seychelles

DEFINITIONS

– 6 –

“SFO” Securities and Futures Ordinance (Chapter 571 of the Laws

of Hong Kong)

“SGM” the special general meeting of the Company to be convened

at 38th Floor, The Centrium, 60 Wyndham Street, Central,

Hong Kong on Thursday, 17 October 2013 at 11:00 a.m.

for the purpose of considering and, if thought fit, approving

the Proposed Investment and the grant of Options to Mr.

Lawrence Ho

“Share(s)” the ordinary share(s) of HK$0.05 each in the capital of the

Company

“Shareholder(s)” the holder(s) of the Share(s)

“Share Option Scheme” the share option scheme adopted by the Company on 7 July

2011

“Stock Exchange” The Stock Exchange of Hong Kong Limited

“substantial shareholder(s)” has the meaning ascribed to it under the Listing Rules

“Target Group” collectively, Oriental Regent and FGCE and each of them

individually is known as a “Project Company”

“US” the United States of America

“VIP” very important person

“HK$” Hong Kong dollar(s), the lawful currency of Hong Kong

“MOP” Macau Pataca(s), the lawful currency of Macau

“RUB” Russian Rouble(s), the lawful currency of Russia

“US$” American dollar(s), the lawful currency of the US

“m2” or “sq.m.” square meter(s)

“%” per cent.

Unless stated otherwise, translations of quoted currency values are made on an approximate

basis and at the rates of US$1 = RUB31.911, US$1 = HK$7.755, RUB1 = HK$0.243 and

MOP1 = HK$0.971. Percentages and figures expressed have been rounded. No representation is

made that any amounts in US$, RUB, HK$ or MOP can be or could have been converted at the

relevant rates at the above or any other rates.

LETTER FROM THE BOARD

– 7 –



(Stock Code: 102)

Non-executive Director:

Mr. Ho, Lawrence Yau Lung (Chairman)

Executive Director:

Mr. Wang, John Peter Ben (Deputy Chairman)

Independent Non-executive Directors:

Mr. Tsui Yiu Wa, Alec

Mr. Pang Hing Chung, Alfred

Dr. Tyen Kan Hee, Anthony

Registered office:

Clarendon House

Church Street

Hamilton HM 11

Bermuda

Head office in Hong Kong:

Room 3701, 37th Floor

The Centrium

60 Wyndham Street

Hong Kong

Principal place of business

in Hong Kong:

6th Floor

Victoria Centre

15 Watson Road

Hong Kong

30 September 2013

To the Shareholders

Dear Sir or Madam,

(1) MAJOR AND CONNECTED TRANSACTIONIN RELATION TO PROPOSED INVESTMENT IN


AND (2) GRANT OF SHARE OPTIONS TO A DIRECTOR AND CONTROLLING SHAREHOLDER OF THE COMPANY

(I) INTRODUCTION

References are made to (i) the announcements of the Company dated 10 July 2013, 15

August 2013 and 25 August 2013 in relation to, among other things, the Proposed Investment; and

(ii) the announcement of the Company dated 10 July 2013 in relation to, among other things, the

conditional grant of Options to Mr. Lawrence Ho.


– 8 –

On 10 July 2013, the Company entered into the Amended and Restated Preliminary

Agreement with New Crescent and Elegant City to amend, restate and supersede the terms of the

Preliminary Agreement in its entirety. The Amended and Restated Preliminary Agreement was

legally binding. However, it did not purport to contain all the terms of the Proposed Investment.

On 23 August 2013, SARL, a wholly-owned subsidiary of the Company, entered into the

Investment Agreement with New Crescent, Firich, Elegant City and Oriental Regent to supersede

and replace the Amended and Restated Preliminary Agreement. On and subject to the terms and

conditions of the Investment Agreement, SARL and New Crescent shall, on Completion, subscribe

for, and Oriental Regent shall issue, the new Oriental Regent Shares. Upon Completion, SARL,

New Crescent, Firich and Elegant City will be interested in 46%, 5%, 19% and 30% of Oriental

Regent respectively.

Firich, being a wholly-owned subsidiary of FEC, was introduced as a new business partner

to the Investment Agreement. Pursuant to the Investment Agreement, Firich will acquire existing

Oriental Regent Shares from Elegant City. Upon Completion, Firich will be interested in 19% of

Oriental Regent and Elegant City’s interest in Oriental Regent will be reduced to 30%. FEC is a

company listed on GreTai Securities Market in Taiwan. It is primarily engaged in the manufacture,

installation and maintenance of electronic gaming machines, multi-player gaming terminals, video

lottery terminals (“VLT”) and lottery point-of-sales terminals (“POS”). Its products are widely

deployed in Macau, Mainland China, Taiwan, Korea, the United States of America and a number of

European countries. Subject to the approvals of the relevant Russian authorities, it is expected that

FEC will contribute to FGCE by providing electronic gaming machines specifically tailored for the

Russian mass market as well as assisting FGCE to develop its clientele from Taiwan and Korea.

The parties to the Investment Agreement consider that the introduction of Firich as a new business

partner to the venture will bring significant synergistic value to the consortium.

In consideration for the subscription and issue of the new Oriental Regent Shares, it

is expected that SARL shall invest an amount equivalent to RUB764,456,000 (equivalent to

approximately US$24.0 million or approximately HK$185.8 million) (subject to adjustment)

payable in US$ by SARL to Oriental Regent on Completion. In addition, SARL shall invest an

additional amount of approximately US$8.6 million (equivalent to approximately RUB274.4 million

or approximately HK$66.7 million) in cash, as equity in Oriental Regent after Completion as

subsequent funding.


– 9 –

The Investment Agreement provides that SARL will make an investment in a casino and

resort development project in Russia, by subscribing new Oriental Regent Shares, representing 46%

of the enlarged issued share capital of Oriental Regent upon Completion. Oriental Regent is an

investment holding company, which owned 100% of FGCE as at the Latest Practicable Date. FGCE

holds a gaming license awarded by the Administration of the Primorye Region to conduct gaming

activities in the IEZ established in the Primorye Region. The Primorye Region is in the Far Eastern

economic region of Russia and has the city of Vladivostok as its administrative center. The gaming

license held by FGCE has been granted for an indefinite period and commenced on 22 April 2012.

Upon Completion, Oriental Regent will hold 100% of FGCE and will be indirectly interested in

100% of the aforesaid casino and resort development in Russia.

On 10 July 2013, following the publication of the Company’s announcement relating to the

Proposed Investment, the Board resolved (with the approval of all the independent non-executive

Directors) to grant Options to subscribe for 20,000,000 Shares to Mr. Lawrence Ho under the Share

Option Scheme, in connection with his appointment as a non-executive Director and Chairman of

the Board. The grant of Options to Mr. Ho is conditional on approval by the Shareholders at the

SGM, at which all connected persons of the Company (including Mr. Ho and his associates) must

abstain from voting in favor of the grant.

The purpose of this circular is to provide you with, among other things, (i) further details

of the Investment Agreement (and the transactions contemplated thereunder) and the conditional

grant of Options to Mr. Lawrence Ho; (ii) a letter of recommendation from the Independent Board

Committee in relation to the Proposed Investment; (iii) a letter of advice from Odysseus in relation

to the Proposed Investment; (iv) the accountants’ reports on the Target Group; (v) the management

discussion and analysis of the Target Group; (vi) the unaudited pro forma financial information of

the Enlarged Group; (vii) the valuation report on the property interests of the Target Group; and

(viii) the notice of SGM.


– 10 –

(II) THE INVESTMENT AGREEMENT

A. SUMMARY OF THE PRINCIPAL TERMS OF THE INVESTMENT AGREEMENT

Set out below are the principal terms of the Investment Agreement.

1. Date: 23 August 2013

2. Parties: (1) SARL;

(2) New Crescent;

(3) Firich;

(4) Elegant City; and

(5) Oriental Regent

3. Sale and purchase of the Firich Sale Shares

Firich shall purchase, and Elegant City shall sell, the Firich Sale Shares with effect

from the Firich Sale Shares Completion Date. The consideration for the Firich Sale Shares

shall be an amount equivalent to RUB631,507,000 (equivalent to approximately US$19.8

million or approximately HK$153.5 million) (subject to adjustment below) payable in

US$. In the event that the novation and extinguishment of the indebtedness owed by FGCE

totaling approximately RUB156.2 million (being the sum of approximately RUB105.3

million (equivalent to approximately US$3.3 million or approximately HK$25.6 million)

to a third party and approximately RUB50.9 million (equivalent to approximately US$1.6

million or approximately HK$12.4 million) to a related company of Elegant City as set out

in sub-paragraph (v) in the paragraph headed “4. Reorganization” under the section headed

“The Investment Agreement” below) is unable to be completed within 30 days of the date of

the Investment Agreement or such later date as the parties to the Investment Agreement may

agree (the “Adjustment Event”), an amount shall be deducted from the consideration for

the Firich Sale Shares, which deduction shall be calculated in accordance with the following

formula:

N x 2 x 19/49

where N is the aggregate amount of the indebtedness owed by FGCE to the aforesaid two

parties which remains owing as at the 30th day after the date of the Investment Agreement,

and Firich shall waive the completion of the novation and extinguishment in respect only of

the outstanding amount represented by N. As at the Latest Practicable Date, there was no

Adjustment Event.


– 11 –

The consideration for the Firich Sale Shares shall be payable by Firich in cash in US$

in two tranches as follows:

(a) an amount of US$13,363,715.53 (equivalent to approximately RUB426.4

million or approximately HK$103.6 million), the Firich Deposit, was payable

(and was paid) promptly following the signing of the Investment Agreement;

and

(b) the remaining balance shall be payable upon Firich Sale Shares Completion.

Elegant City has unconditionally and irrevocably directed Firich to pay the remaining

balance of the consideration in (b) above to Oriental Regent as a shareholder loan advanced

to Oriental Regent by Elegant City (the “EC Shareholder Loan”).

Under the Investment Agreement, Elegant City also unconditionally and irrevocably

directed Firich to pay the Firich Deposit to Kinetic for the following purposes:

(a) in respect of an amount of US$12,200,000 (equivalent to approximately

RUB389.3 million or approximately HK$94.6 million), as payment in full of

the purchase price payable by Oriental Regent for the purchase by Oriental

Regent of 50% of the charter capital of FGCE, pursuant to the Kinetic

Acquisition Agreement; and

(b) in respect of the remaining balance of US$1,163,715.53 (equivalent to

approximately RUB37.1 million or approximately HK$9.0 million), as a

repayment of a loan owing by Elegant City to Kinetic.

Firich Sale Shares Completion is conditional upon completion of sub-paragraphs (ii),

(iv) and (v) of the Reorganization as set out in the paragraph headed “4. Reorganization”

below and Firich being reasonably satisfied with the results of its due diligence review of

the Target Group, including but not limited to Firich having been provided with and being

reasonably satisfied with the contents of the audited financial statements of the Target Group.

The conditions precedent above in relation to the sale and purchase of the Firich Sale

Shares may be waived, in whole or in part, by Firich. Firich Sale Shares Completion shall

take place on the second business day after the date on which the conditions precedent in

relation to the sale and purchase of the Firich Sale Shares are satisfied or waived or any other

date agreed by Elegant City and Firich. As at the Latest Practicable Date, Firich Sale Shares

Completion has taken place.


– 12 –

Immediately upon Firich Sale Shares Completion, Firich will be interested in 19,000

Oriental Regent Shares, representing approximately 38.8% of the issued share capital of

Oriental Regent.

4. Reorganization

The Investment Agreement requires that Elegant City shall procure that the

Reorganization be completed prior to Completion. The Reorganization includes the following

steps:

(i) Oriental Regent shall purchase 50% of the charter capital of FGCE from

Kinetic pursuant to the Kinetic Acquisition Agreement so that Oriental Regent

shall be the legal and beneficial owner of 100% of the charter capital of FGCE

on Completion.

(ii) The purchase price payable by Oriental Regent for the purchase of 50% of the

charter capital of FGCE shall be an amount of US$12.2 million (equivalent to

approximately RUB389.3 million or approximately HK$94.6 million), which

shall be payable by Oriental Regent in full in cash on completion of that

purchase under the Kinetic Acquisition Agreement. The purchase price payable

by Oriental Regent for the purchase of 50% of the charter capital of FGCE

shall be paid by Elegant City directing that the amount of US$13,363,715.53

(equivalent to approximately RUB426.4 million or approximately HK$103.6

million), being the Firich Deposit, shall be paid to Kinetic for the purchase

of 50% of the charter capital of FGCE pursuant to the Kinetic Acquisition

Agreement, with the remainder of the Firich Deposit to be used to repay a loan

due from Elegant City to Kinetic. The payment of US$12.2 million (equivalent

to approximately RUB389.3 million or approximately HK$94.6 million) by

Firich at Elegant City’s direction to Kinetic for the purchase of 50% of the

charter capital of FGCE will result in an interest-free shareholder loan owed by

Oriental Regent to Elegant City.

(iii) Apart from the obligation to pay the purchase price of 50% of the charter

capital of FGCE and the shareholder loan referred to sub-paragraph (ii) above,

Oriental Regent shall not incur any other liability in connection with the

purchase of 50% of the charter capital of FGCE from Kinetic.


– 13 –

(iv) Oriental Regent has a related party indebtedness in the amount of

approximately HK$73.36 million (equivalent to approximately US$9.5 million

or approximately RUB301.9 million) due to Elegant City.

(v) As at 30 June 2013, the two principal amounts of indebtedness owed by

FGCE were approximately RUB105.3 million (equivalent to approximately

US$3.3 million or approximately HK$25.6 million) to a third party and

approximately RUB50.9 million (equivalent to approximately US$1.6 million

or approximately HK$12.4 million) to a related company of Elegant City.

The principal debtor of FGCE is another related company of Elegant City

and the aggregate amount owed by such related company to FGCE was

approximately RUB28.4 million (equivalent to approximately US$0.9 million

or approximately HK$6.9 million). All the aforesaid indebtedness will be

novated to and assumed by, or assigned to (as the case may be), Elegant City.

All the inter-company debts between FGCE and Oriental Regent or between

Oriental Regent and Elegant City mentioned in sub-paragraphs (ii), (iv) and this

sub-paragraph (v) will be set-off and any remaining balances will be capitalized

and extinguished in consideration for the issue of 39,000 new Oriental Regent

Shares such that there will be no inter-company debts between FGCE and

Oriental Regent, or between Oriental Regent and Elegant City, other than the

EC Shareholder Loan.

(vi) Immediately following the steps referred to in sub-paragraph (v) above, there

shall be no related party indebtedness owed by Oriental Regent to Elegant City,

other than the EC Shareholder Loan.

(vii) One (1) Oriental Regent Share, representing 0.01% of the issued share capital

of Oriental Regent, held by Mr. Oleg Drozdov shall be transferred to Elegant

City.

(viii) Oriental Regent shall increase its authorized share capital from HK$10,000 to

HK$500,000.

As at the Latest Practicable Date, steps (i), (ii), (iii) and part of step (v) of the

Reorganization have been completed. The parties to the Investment Agreement have agreed

that the indebtedness to be novated to, and assumed by, or assigned to (as the case may be)

Elegant City referred to the sub-paragraph (v) above shall instead be novated to, and assumed

by or assigned to (as the case may be) the controlling shareholder of Elegant City, being

Mr. Oleg Drozdov. That agreed variation does not materially affect any other aspect of the

Reorganization.


– 14 –

5. Investment in Oriental Regent

On and subject to the terms and conditions of the Investment Agreement, SARL and

New Crescent shall, on Completion, subscribe for 46,000 new Oriental Regent Shares and

5,000 new Oriental Regent Shares respectively and Oriental Regent shall issue in aggregate

51,000 new Oriental Regent Shares fully paid up and free from encumbrances and together

with all rights conferred by those new Oriental Regent Shares as at the date of their issue.

Neither SARL nor New Crescent will be obliged to complete their subscription of the new

Oriental Regent Shares unless their subscriptions of the new Oriental Regent Shares are

completed simultaneously. The new Oriental Regent Shares shall rank pari passu with the

Oriental Regent Shares in issue as at the date of relevant issue. Upon Completion, SARL,

New Crescent, Firich and Elegant City will be interested in 46%, 5%, 19% and 30% of the

enlarged issued share capital of Oriental Regent respectively.

6. Consideration

In consideration for the subscription and issue of the new Oriental Regent Shares,

(i) SARL shall invest an amount equivalent to RUB764,456,000 (equivalent to

approximately US$24.0 million or approximately HK$185.8 million) (subject

to adjustment below) payable in US$ to Oriental Regent upon Completion. If

there is an Adjustment Event, an amount shall be deducted from the investment

payable by SARL, which deduction shall be calculated in accordance with the

following formula:

N x 46/49

and SARL shall waive the completion of the novation and extinguishment

in respect only of the outstanding amount represented by N. As at the Latest

Practicable Date, there was no Adjustment Event.

(ii) New Crescent shall invest an amount equivalent to RUB83,093,000 (equivalent

to approximately US$2.6 million or approximately HK$20.2 million) (subject

to adjustment below), payable in US$ to Oriental Regent upon Completion. If

there is an Adjustment Event, an amount shall be deducted from the investment

payable by New Crescent, which deduction shall be calculated in accordance

with the following formula:

N x 5/49

and New Crescent shall waive the completion of the novation and

extinguishment in respect only of the outstanding amount represented by N. As

at the Latest Practicable Date, there was no Adjustment Event.


– 15 –

Any and all additional direct or indirect investment in the Lot 9 Project, and any

construction costs in respect of the Lot 9 Project, proposed to be incurred on or after 30

June 2013 and on or prior to the Completion Date shall first be discussed with and agreed

by SARL and New Crescent, before the relevant investment is made or the relevant costs are

incurred.

The consideration for the Proposed Investment was mutually agreed among SARL,

New Crescent, Firich and Elegant City based on commercial considerations, on an arm’s

length basis. The consideration for the Proposed Investment, including the adjustment above,

is to ensure that SARL and New Crescent will invest in the Target Group at cost.

Payment for the consideration will be made on the Completion Date.

7. Conditions precedent under the Investment Agreement

Completion is conditional upon the satisfaction, or waiver, of the following conditions

precedent:

(i) Elegant City shall procure that audited financial statements of the Target Group

are prepared and delivered to SARL and New Crescent;

(ii) completion of the Reorganization;

(iii) the Company obtaining all necessary consents and approvals (including

shareholders’ approvals) required by the Company under the Listing Rules for

the transactions contemplated by the Investment Agreement;

(iv) SARL or the Company having successfully raised sufficient funds on terms

and conditions satisfactory to them to enable SARL to satisfy the consideration

for the subscription of new Oriental Regent Shares pursuant to the Investment

Agreement; and

(v) there having been no breach of any covenant, representation or warranty under

the Investment Agreement.

The conditions precedent described in sub-paragraphs (i) and (ii) above may

be waived jointly by SARL and New Crescent. The condition precedent described in

sub-paragraph (iv) above may be waived unilaterally by SARL. The condition precedent

described in sub-paragraph (v) above may be waived unilaterally by the non-breaching party.

The condition precedent described in sub-paragraph (iii) above shall not be waived. At the

Latest Practicable Date, condition (i) above had been fulfilled and the Company has no

intention to waive any of the conditions precedent described in sub-paragraphs (ii) or (iv)

above.


– 16 –

8. Key operating and management provisions

The Investment Agreement will include the following terms, which will apply with

effect from Completion:

(i) Subject to the provisions in respect of related party transactions as described

in paragraph headed “11. Related party transactions” below and those matters

which require unanimous approvals of all the directors of the board of FGCE

as described in paragraph headed “16. Matters requiring unanimous approval”

below, SARL will contribute to the joint venture by providing management

and operational advices to FGCE and Elegant City will contribute to the joint

venture by providing advices on real estate and construction matters as well

as maintaining relations with federal and regional government officials in

Russia. For the avoidance of doubt, in the course of providing management and

operational advices to FGCE, SARL shall be bound by the business plan and

annual budget as set and unanimously approved by the board of directors of

FGCE. The parties to the Investment Agreement shall keep each other informed

on a timely basis of all material developments.

(ii) Each of the respective boards of Oriental Regent and FGCE will consist of 5

members, with 2 to be appointed by SARL, 1 to be appointed by New Crescent

and 2 to be appointed by Elegant City in each case. In the event Elegant City

holds, in aggregate, (a) less than 15% but more than or equivalent to 5% of

the issued share capital of Oriental Regent, Elegant City will be entitled to

appoint only one director to each board of Oriental Regent and FGCE; and (b)

less than 5% of the issued share capital of Oriental Regent, Elegant City shall

not be entitled to appoint any director to each board of Oriental Regent and

FGCE. The Oriental Regent Shareholders at the relevant time shall negotiate in

good faith to determine the appointment right(s) for the vacated board seat(s)

amongst them with reference to each of their respective shareholdings in

Oriental Regent.

(iii) Decisions of each of these boards will be by simple majority resolution

except for those matters requiring unanimous board approvals as described

in paragraph headed “16. Matters requiring unanimous approval” below and

related party transactions as described in sub-section headed “11. Related party

transactions” below.


– 17 –

(iv) All resolutions of shareholders of Oriental Regent and FGCE will be by

simple majority except for resolutions of shareholders required to approve

any of the matters requiring unanimous approvals as described in paragraph

headed “16. Matters requiring unanimous approval” below and related party

transactions as described in paragraph headed “11. Related party transactions”

below.

(v) SARL shall nominate the CEO of FGCE and any replacement thereof, and such

appointment shall have to be approved by the board of FGCE. The CEO shall

be responsible for the running of the Target Group’s business and the CEO shall

be delegated with the power and authority to manage the business of the Target

Group. The CEO shall report to the board of FGCE and implement the business

plan and the budget as set and unanimously approved by the board of directors

of FGCE. All key staff shall report to the CEO. The CEO shall establish an

executive committee, with such composition and terms of reference as the

CEO shall deem appropriate from time to time, to manage the business and

operations of FGCE. Elegant City shall nominate the deputy CEO of FGCE and

any replacement thereof (subject to the prior approval of SARL and the board

of directors of FGCE). The Deputy CEO shall be responsible for dealing with

matters such as Russian legislation and compliance; interactions with Russian

authorities, tax inspections and supervisory bodies. In the event that Elegant

City ceases to hold Oriental Regent Shares representing at least 15% of the

issued share capital of Oriental Regent at the relevant time, Elegant City shall

no longer be entitled to nominate the Deputy CEO of FGCE, SARL shall have

the right to remove the incumbent Deputy CEO and nominate a replacement

Deputy CEO. A CFO, an internal auditor and an in-house construction project

manager of FGCE will also be recruited, and in the event they are recruited

before the CEO is appointed, approval by the board of FGCE is required.

Both the CFO and the internal auditor shall have good local and international

accounting knowledge and have worked in international firms. All other senior

executive appointments of FGCE shall require the approval of the board of

FGCE.


– 18 –

9. Subsequent equity funding after Completion

The EC Shareholder Loan of approximately US$5.6 million (equivalent to

approximately RUB178.7 million or approximately HK$43.4 million) (assuming there will

be no Adjustment Event) will be deemed to have been advanced by Elegant City to Oriental

Regent on the Firich Sale Share Completion Date. Promptly after the Completion Date,

such EC Shareholder Loan shall be capitalized as equity of Oriental Regent and will be

deemed to be an equity capital injection by Elegant City. Subsequent to the above, each of

SARL, New Crescent and Firich shall invest an amount of approximately US$8.5 million

(equivalent to approximately RUB271.2 million or approximately HK$65.9 million), US$0.9

million (equivalent to approximately RUB28.7 million or approximately HK$7.0 million)

and US$3.5 million (equivalent to approximately RUB111.7 million or approximately

HK$27.1 million) (assuming there will no Adjustment Event) respectively, in cash, as equity

in Oriental Regent in accordance with their respective shareholdings in proportion to the EC

Shareholder Loan capitalized by Elegant City.

10. The Gaming Authorizations and changes in the laws, regulations or policies by

the government of Russia

In the event that:

(i) an Oriental Regent Shareholder or a Project Company receives a notification

from Gaming Regulators which requests such Oriental Regent Shareholder

to terminate its association with any other Oriental Regent Shareholder, any

Project Company and/or the Lot 9 Project, the failure of which will prejudice

the continuation of any Gaming Authorization held or required by any Oriental

Regent Shareholder (or any of its affiliates) or any Project Company to conduct

gaming or gambling businesses in Russia or any other relevant jurisdictions; or

(ii) any change in the laws, regulations or policies by the government of Russia or

any other relevant jurisdictions otherwise results in any of the relationships,

transactions and matters contemplated by the Investment Agreement, or the

involvement of any of the Oriental Regent Shareholders in the Lot 9 Project or

gaming businesses in Russia generally, becoming unlawful,

the Oriental Regent Shareholders shall negotiate in good faith and use their respective

best endeavors to resolve the issues with the aim to continue the relationships,

transactions and matters contemplated by the Investment Agreement to the extent

possible.


– 19 –

If the circumstances described in (i) above arise and the Oriental Regent Shareholders

are unable to resolve the issues after negotiations in good faith, each of SARL, New Crescent

and/or Firich (as the case may be) shall have the right to make one of the following elections:

(a) elect to sell all the Oriental Regent Shares it owns at the relevant time, together with all

outstanding shareholder loans due to it by Oriental Regent at fair value to the other Oriental

Regent Shareholders on a pro rata basis in proportion to their respective shareholdings in

Oriental Regent at the relevant time; (b) elect to purchase all the Oriental Regent Shares

held by one or more of the other Oriental Regent Shareholders together, with all outstanding

shareholder loans due to such Oriental Regent Shareholders at fair value on a pro rata basis

in proportion to their respective shareholdings in Oriental Regent at the relevant time; or

(c) elect to sell all the Oriental Regent Shares it owns at the relevant time, together with all

outstanding shareholder loans due to it by Oriental Regent, to third party purchaser(s).

If the circumstances described in (ii) above arise and the Oriental Regent Shareholders

are unable to resolve the issues after negotiations in good faith, each of SARL, New Crescent

and/or Firich (as the case may be) shall have the right to make one of the elections described

in (a) or (c) above.

11. Related party transactions

Every related party transaction shall require the prior approval of a resolution

of Oriental Regent’s board passed unanimously by all the directors of Oriental Regent

attending and entitled to vote in respect of the resolution to approve the relevant related

party transaction at a meeting of Oriental Regent’s board; provided that any director of

Oriental Regent who is appointed by the Oriental Regent Shareholder who (or whose related

party(ies)) is/are party to or interested in the relevant related party transaction shall not be

entitled to vote in respect of any decision by the board of Oriental Regent in respect of that

related party transaction.

12. Right of first refusal in respect of development investment opportunities

If an Oriental Regent Shareholder or any of its respective affiliates seeks to develop,

either alone or jointly, any of the real estate lots within the IEZ and proposes to seek

investment from any third party investors for that development, such Oriental Regent

Shareholder must first offer the opportunity to provide the investment sought from third party

investor(s) to the other Oriental Regent Shareholders.


– 20 –

13. Right of first refusal in respect of operation and management opportunities

The Oriental Regent Shareholders shall procure that FGCE shall be offered the right

to operate and manage all future casino projects to be developed or acquired by any of the

Oriental Regent Shareholders or any of their respective affiliates, either alone or jointly, in

the IEZ. Such offer must be given to FGCE by the Oriental Regent Shareholder which (or the

affiliates of which) has or have developed or acquired, or propose(s) to develop or acquire, a

casino project in the IEZ (either alone or jointly).

14. Shareholders’ loans

Subject to the requirements as set out in paragraph headed “9. Subsequent equity

funding after Completion” above and “15. Subsequent funding” below, there is no obligation

on the Oriental Regent Shareholders to provide any further finance to any Project Company.

If any Oriental Regent Shareholder agrees to provide further debt financing, such financing

shall be provided in the form of ordinary shareholder loans, except in those cases specified in

the Investment Agreement. All ordinary shareholder loans advanced to the Target Group shall

be advanced through Oriental Regent. The opportunity to provide ordinary shareholder loans

shall be offered to the Oriental Regent Shareholders on a pro rata basis, in proportion to their

respective shareholdings in Oriental Regent.

15. Subsequent funding

The Oriental Regent Shareholders agree that the Target Group shall primarily be

financed, if the Target Group requires any additional finance from time to time and so far

as practicable, from external debt funding sources (including banks or other money lending

institutions) and on terms to be agreed between the board of Oriental Regent and any relevant

third party lenders and that any security required in relation to such external funding shall, if

possible, be provided by the Target Group.

If external funding is obtained, any Oriental Regent Shareholder has the right to

substitute the external financing, or any portion thereof, with its own funds on the same

terms as offered by the external party.

If the board of Oriental Regent determines that external financing is unavailable or

inadequate, the shortfall shall be funded by the Oriental Regent Shareholders, either in

the form of equity or ordinary shareholder convertible loans. Any such funding shall be

provided by the Oriental Regent Shareholders in proportion to their respective shareholdings;

provided that no Oriental Regent Shareholder shall be required to provide funding other than

simultaneously with the other Oriental Regent Shareholders which have agreed to provide

funding and no Oriental Regent Shareholder shall be required to provide funding unless the

Oriental Regent Shareholder agrees to do so. If the board of Oriental Regent has determined


– 21 –

that external funding is unavailable or is inadequate and that the shortfall is required to be

funded by the Oriental Regent Shareholders, but an Oriental Regent Shareholder does not

wish to provide funding (or, having agreed to do so, does not provide funding), the other

Oriental Regent Shareholders may, if they wish to do so, provide the required funding, in

proportion to their respective shareholdings, and the respective interest in Oriental Regent of

the Oriental Regent Shareholder which does not (or Oriental Regent Shareholder which do

not) provide funding shall be diluted accordingly.

16. Matters requiring unanimous approval

No Project Company shall take any of the actions set out below without the unanimous

written approval of all of the members of the board of the relevant Project Company or

the unanimous consent of the Oriental Regent Shareholders, unless the action is expressly

required under the Investment Agreement:

(i) Acquisition or purchase of assets exceeding RUB30 million (equivalent

to approximately US$0.9 million or approximately HK$7.3 million) or its

equivalent in any other currency;

(ii) Disposal or transfer of assets exceeding RUB30 million (equivalent to

approximately US$0.9 million or approximately HK$7.3 million) or its

equivalent in any other currency;

(iii) Contractual commitment exceeding RUB30 mil l ion (equivalent to

approximately US$0.9 million or approximately HK$7.3 million) or its

equivalent in any other currency, to be entered into between any Project

Company and any party or parties which is not a Project Company;

(iv) Lending or making advance or providing any surety or security arrangement

in respect of any loan or third party obligation whatsoever to any party or

parties not being a Project Company in an amount exceeding RUB30 million

(equivalent to approximately US$0.9 million or approximately HK$7.3 million)

or its equivalent in any other currency;

(v) Acquiring, disposing of, surrendering or assigning any freehold or leasehold

property with a value exceeding RUB30 million (equivalent to approximately

US$0.9 million or approximately HK$7.3 million) or its equivalent in any other

currency;


– 22 –

(vi) Borrowing or creating indebtedness from, or creating any encumbrance in favor

of, any party or parties other than a Project Company in an amount exceeding

RUB30 million (equivalent to approximately US$0.9 million or approximately

HK$7.3 million) or its equivalent in any other currency;

(i) to (vi) above shall not apply to items already approved in the annual budget

referred to in (xiii) below.

(vii) A decision of the board of any Project Company which relates to matter(s)

outside the normal course of business of the relevant Project Company and

deliberately made to prejudice the interests of one or more particular Oriental

Regent Shareholder(s), rather than in the interests of all Oriental Regent

Shareholders as a whole;

(viii) Passing any resolution or presenting any petition for a Project Company’s

winding up (unless the relevant Project Company is insolvent);

(ix) Granting any share option or right to subscribe, acquire or convert into shares;

(x) Ceasing, or making any material change in the nature of, the business of any

Project Company or any Project Company establishing any new business;

(xi) Altering any Project Company’s charter or constitutional documents;

(xii) Adopting or approving a Project Company’s annual accounts;

(xiii) Approving a business plan or annual budget (or other budget of a Project

Company or the Lot 9 Project) or amending any business plan or annual budget

(or other budget) previously approved by the Oriental Regent Shareholders;

(xiv) Transferring the whole or any material part of the undertaking of any Project

Company with a value exceeding RUB30 million (equivalent to approximately

US$0.9 million or approximately HK$7.3 million) or its equivalents in any

other currency;

(xv) Forming any subsidiary, acquiring or disposing of any material interest in

any business or company, participating in any partnership or joint venture or

entering into any scheme of arrangement or merger;


– 23 –

(xvi) Entering into any agreement not on bona fide arms’ length terms or any related

party agreement (apart from an employment contract);

(xvii) Initiating or settling any litigation or arbitration (other than the collection of

debts arising in the ordinary course of trading);

(xviii) Entering into any material or long-term agreement, including negotiating

and entering into any hotel management agreement or operator agreement,

except for agreements entered into in the normal course of business e.g. junket

agreements;

(xix) Granting any power of attorney or, except as otherwise provided in the

Investment Agreement, delegating any powers of the board of any Project

Company to a committee or otherwise;

(xx) Except pursuant to a rights issue where the relevant capital is offered

to all Oriental Regent Shareholders on a pro rata basis, in proportion to

their respective shareholdings in Oriental Regent or upon conversion of

any shareholder convertible loans (as provided for under the Investment

Agreement), issuing or allotting any share or other capital or reducing,

converting, sub-dividing, cancelling or otherwise reorganizing, or altering any

rights attaching to, any Oriental Regent Shares;

(xxi) Buying back or redeeming a Project Company’s own shares;

(xxii) Appointing, removing or replacing any Project Company’s auditors;

(xxiii) Changing any Project Company’s accounting reference date;

(xxiv) Establishing any branches or representative offices of any Project Company;

(xxv) Approving, amending or terminating any material policies in respect of

employees’ remuneration, employment terms and/or pension schemes of CEO,

CFO, Deputy CEO, internal auditor and/or any heads of department of FGCE;

and

(xxvi) Opening any bank account or signing or varying any bank mandates.


– 24 –

17. Dividend policy

Oriental Regent shall not pay dividends until there are sufficient free cash

flows generated from operations (after taking into account funds needed for any future

developments) to permit such a payment. Before any dividends can be paid, all outstanding

shareholders’ loans must have been completely repaid, converted or capitalized.

18. Restrictions on transfer of Oriental Regent Shares and shares in Elegant City

No Oriental Regent Shareholder shall sell, transfer, assign, pledge, charge or

otherwise dispose of any interest in Oriental Regent Shares except as permitted by the

Investment Agreement or with the prior written consent of the other Oriental Regent

Shareholders. The Investment Agreement includes rights of first refusal in relation to

transfers of Oriental Regent Shares. Furthermore, no shareholders of Elegant City may

transfer any shares in Elegant City except as permitted by the Investment Agreement.

Subject to certain limited exceptions, if a change of control shall occur in respect

of any Oriental Regent Shareholder, then the changed Oriental Regent Shareholder shall

notify the other Oriental Regent Shareholders immediately and the changed Oriental Regent

Shareholder shall be subject to the rights of first refusal in respect of all the Oriental Regent

Shares then held by it.

If SARL proposes to sell its entire shareholding in Oriental Regent, SARL shall be

subject to the rights of first refusal under the Investment Agreement and a right of co-sale in

favor of the other Oriental Regent Shareholders.

19. Completion

Completion shall take place on the 5th business day after which the conditions

precedent in relation to the Investment Agreement are satisfied or waived or any other date

agreed in writing by SARL, New Crescent and Elegant City.

20. Termination

The Investment Agreement shall be terminated in respect of an Oriental Regent

Shareholder upon such shareholder ceasing to hold any Oriental Regent Shares. Such

termination shall not prejudice the continuation of the Investment Agreement among the

other parties to the Investment Agreement.


– 25 –

In addition, the Investment Agreement will terminate upon the occurrence of any of

the following:

(i) by mutual written consent of the parties to the Investment Agreement;

(ii) if there has been a material breach by SARL, New Crescent, Firich or Elegant

City of their respective warranties; and

(iii) by any Oriental Regent Shareholder giving written notice to the other parties

to the Investment Agreement following a resolution having been passed for the

winding up of Oriental Regent.

21. Governing law

English law

B. INFORMATION ON THE TARGET GROUP

Casino resort project of the Target Group

The Investment Agreement provides that SARL will make an investment in a gaming

and resort development project in Russia that is contemplated to target both Asian and

local patrons. The casino and resort complex is expected to have approximately 119 hotel

rooms, 800 slot machines, 25 VIP gaming tables, 15 mass market baccarat tables and 25

mass market tables providing other table games in the first year. FGCE’s Gaming License

does not limit the number of slot machines or tables at the complex. The superstructure

(including foundations and shell (floors and roof)) of the main casino and hotel building

has already been constructed and the casino is targeted to open in the second half of 2014.

Upon opening, the subject gaming and resort development project is expected to employ

approximately 1,600 full-time employees.


– 26 –

SARL's investment will be made by subscribing new Oriental Regent Shares,

representing 46% of the enlarged issued share capital of Oriental Regent at Completion.

Oriental Regent is an investment holding company which owned 50% of FGCE as at the

date of the Investment Agreement. Oriental Regent entered into the Kinetic Acquisition

Agreement to acquire the remaining 50% of FGCE from Kinetic. The remaining 50% of

FGCE was acquired by Oriental Regent from Kinetic on 26 August 2013. FGCE holds a

gaming license awarded by the Administration of the Primorye Region to conduct gaming

activities in the IEZ established in the Primorye Region. The Primorye Region is in the Far

Eastern economic region of Russia and has the city of Vladivostok as its administrative

center. The gaming license held by FGCE has been granted for an indefinite period and

commenced on 22 April 2012. Upon Completion, Oriental Regent will hold 100% of FGCE

and will be indirectly interested in 100% of the aforesaid gaming and resort development in

Russia.

FGCE is also the tenant under the Lot 8 and Lot 9 Lease in respect of two land lots in

the IEZ, for a period of approximately 14 years commencing on 27 July 2011 and ending on

20 July 2025. The land area of the principal land lot (Lot 9) is approximately 90,455 m2 and

has a total planned gross floor area of approximately 32,699 m2. The other land lot (Lot 8) is

mainly the utility zone for the location of mechanical, electrical and plumbing infrastructure

servicing Lot 9 and possibly other land lots within the IEZ. The lessor of the Lot 8 and Lot 9

Lease was initially OJSC “Nash Dom Primorye”, which has subsequently transferred, among

other things, all of its rights and obligations in relation to the Lot 8 and Lot 9 Lease to OJSC

“Primorsky Krai Development Corporation”. Both OJSC “Nash Dom Primorye” and OJSC

“Primorsky Krai Development Corporation” are joint stock companies wholly owned by

the Administration of the Primorye Region, Russia and are third parties independent of the

Company and its connected persons. The rights and obligations of FGCE under the Lot 8 and

Lot 9 Lease remains unchanged after the aforesaid change of lessor.

Upon Completion, FGCE will be a wholly-owned subsidiary of Oriental Regent

(pursuant to the Reorganization described above) and will develop the casino resort complex

on Lot 9.

The Investment Agreement provides that FGCE shall enter into a management contract

with SARL, or an affiliate of SARL, to manage the entire operations of FGCE, for a fee

of 3% of gross gaming revenue generated by FGCE (less any withholding tax or other

deductions FGCE is required by law to make). The Investment Agreement also provides that

New Crescent, or an affiliate of New Crescent, will enter into a consultancy agreement with

FGCE to provide gaming consultancy services to FGCE, for a fee of 0.3% of gross gaming

revenue generated by FGCE (less any withholding tax or other deductions FGCE is required

by law to make).


– 27 –

The estimated total investment for the casino resort complex to be constructed on Lot

9 is approximately US$130 million (equivalent to approximately RUB4,148.4 million or

approximately HK$1,008.2 million). Based on the audited accounts of FGCE as at 30 June

2013 as set out in Appendix IIB to this circular, the total construction cost incurred for the

casino resort complex was approximately RUB629.1 million (equivalent to approximately

US$19.7 million or approximately HK$152.9 million), excluding relevant value-added tax.

Out of the approximately RUB629.1 million (equivalent to approximately US$19.7 million

or approximately HK$152.9 million), approximately RUB496.5 million (equivalent to

approximately US$15.6 million or approximately HK$120.6 million) was incurred for the

design and survey works and construction and assembly works on the buildings of the casino

resort complex on Lot 9, while the remaining balance was expended on the infrastructures,

earthworks and forest clearing on Lot 8 and relevant area.

Upon Completion, a total of RUB847,549,000 (equivalent to approximately US$26.6

million or approximately HK$205.7 million) will be injected into Oriental Regent. In

addition, the parties to the Investment Agreement will contribute an additional US$18.5

million (equivalent to approximately RUB590.4 million or approximately HK$143.5 million)

as subsequent funding pursuant to the Investment Agreement.

In relation to the remaining amount of the required investment immediately after

Completion and subsequent funding pursuant to the Investment Agreement, estimated to

be approximately US$59.4 million (equivalent to approximately RUB1,895.5 million or

approximately HK$460.6 million) as set out in the table below, the Investment Agreement

provides that SARL, New Crescent, Firich and Elegant City will first seek external debt

financing. If external financing is obtained, any of SARL, New Crescent, Firich or Elegant

City has the right to substitute its own funds for all or part of the external financing, on

the same terms as offered by the external party. To the extent that external financing is

unavailable or insufficient, SARL, New Crescent, Firich and Elegant City will (subject to

unanimous approval as a “minority protection” matter) fund the shortfall, either in the form

of equity or shareholders’ loans, pro rata to their respective shareholdings in Oriental Regent.

No party is required to provide funding or guarantee unless the party concerned agrees to do

so. However, the Investment Agreement also includes provisions enabling Oriental Regent

Shareholders to provide another shareholder’s funding where the other Oriental Regent

Shareholder is unable to do so, thereby diluting the percentage shareholding of the non-

funding shareholder.


– 28 –

Based on information currently available, the estimated investment deemed to have

been funded by the parties under the Investment Agreement (i) upon completion of the

Reorganization; (ii) upon Completion; (iii) upon contribution of the subsequent funding

immediately after Completion pursuant to the Investment Agreement; and (iv) after

contribution of subsequent funding in (iii) (i.e. outstanding required investment assuming no

external financing is secured) are summarized below:

SARLNew

Crescent FirichElegant

City Total(Note 3)

(i) Upon completion of the

Reorganization

– US$ equivalent (million) – – – 25.5 25.5

– RUB (million) – – – 814.3 814.3

– HK$ equivalent (million) – – – 197.9 197.9

(ii) Upon Completion (Note 1)

– US$ equivalent (million) 24.0 2.6 9.9 15.6 52.1

– RUB (million) 764.5 83.1 315.8 498.6 1,662.0

– HK$ equivalent (million) 185.8 20.2 76.7 121.2 403.9

(iii) Immediately after Completion

(Note 1)

– US$ (million) 32.5 3.5 13.4 21.2 70.6

– RUB equivalent (million) 1,037.1 111.7 427.6 676.5 2,252.9


(iv) Outstanding required investment

(Note 2)

– US$ (million) 27.3 3.0 11.3 17.8 59.4

– RUB equivalent (million) 871.2 95.7 360.6 568.0 1,895.5


Total investment ((iii)+(iv))

– US$ (million) 59.8 6.5 24.7 39.0 130.0

– RUB equivalent (million) 1,908.3 207.4 788.2 1,244.5 4,148.4

– HK$ equivalent (million) 463.7 50.4 191.5 302.5 1,008.2

Notes:

1. The amounts are expected to be payable in the fourth quarter of 2013.

2. The amounts are expected to be payable in the first quarter of 2014.

3. The amounts in “Total” column may not be equal to the sum of amounts in the other columns due to

rounding difference.


– 29 –

The proposed sources of funding for the Group’s participation in the Proposed

Investment are set out in the sub-section headed “D. Proposed sources of funding for the

Group’s participation in the Lot 9 Project under the Investment Agreement” below.

Financial information of the Target Group

Set out below is the audited financial information of the Target Group for each of

the relevant periods under review as taken from the accountants’ report on Oriental Regent

prepared in accordance with the Hong Kong Financial Reporting Standards and accountants’

report on FGCE prepared in accordance with the International Financial Reporting Standards

as set out in Appendices IIA and IIB to this circular respectively:

Oriental Regent

For the

year ended

30 June 2013

For the

year ended

30 June 2012

From

12 August 2010

(the date of

incorporation)

to 30 June 2011

HK$ HK$ HK$

Loss before taxation and

extraordinary items (4,688,150) (67,958) (79,007)

Loss after taxation and

extraordinary items (4,688,150) (67,958) (79,007)

Note: The losses of Oriental Regent for the year ended 30 June 2013 were primarily made up of an

imputed interest expenses of approximately HK$4.6 million arising from an interest-free loan from

Elegant City.


– 30 –

FGCE

For the

year ended

30 June 2013

For the

year ended

30 June 2012

From

24 September

2010

(the date of

incorporation)

to 30 June 2011

RUB RUB RUB

Profit/(Loss) before taxation and

extraordinary items

157,000

(equivalent to

approximately

US$4,920 or

approximately

HK$38,151)

(2,979,000)

(equivalent to

approximately

US$(93,353) or

approximately

HK$(723,897))

(15,000)

(equivalent to

approximately

US$(470) or

approximately

HK$(3,645))

Profit/(Loss) after taxation and

extraordinary items

73,000

(equivalent to

approximately

US$2,288 or

approximately

HK$17.739

(3,032,000)

(equivalent to

approximately

US$(95,014) or

approximately

HK$(736,776)

(28,000)

(equivalent to

approximately

US$(877) or

approximately

HK$(6,804)

Based on the aforesaid accountants’ reports on Oriental Regent and FGCE, the

audited net assets of Oriental Regent and FGCE as at 30 June 2013 were approximately

HK$27.6 million and RUB683.6 million (equivalent to approximately US$21.4 million or

approximately HK$166.1 million) respectively.


– 31 –

Shareholding structure of the Target Group

Set out below are the shareholding structure charts of the Target Group (i) as at

the Latest Practicable Date; (ii) immediately after completion of the Reorganization; (iii)

immediately after the Firich Sale Shares Completion; and (iv) immediately after Completion.

(i) As at the Latest Practicable Date

0.01%99.99%

100%

Oriental Regent

(Hong Kong)

FGCE

(Russia)

Casino resort complex on

Lot 9 and the Gaming

License

Elegant City

(BVI)Mr. Oleg Drozdov

(ii) Immediately after completion of the Reorganization

100%

100%

Elegant City

(BVI)

Oriental Regent

(Hong Kong)

FGCE

(Russia)



License


– 32 –

(iii) Immediately after Firich Sale Shares Completion

100%

38.8%61.2%

Elegant City

(BVI)

Firich

(Mauritius)

Oriental Regent

(Hong Kong)

FGCE

(Russia)



License

(iv) Immediately after Completion

46%19%30% 5%

100%



License

Elegant City

(BVI)

Firich

(Mauritius)

SARL

(BVI)

New Crescent

(BVI)

Oriental Regent

(Hong Kong)

FGCE

(Russia)


– 33 –

C. REASONS FOR AND BENEFITS OF THE PROPOSED INVESTMENT

Because of the cyclical downturn of the existing business arising from the impact of

government policies against property speculation in Hong Kong as mentioned in the Company’s

annual report for the year ended 31 December 2012, the Company conducted a review of the

financial position and operations of the Group and is currently in discussion with a number of

local construction companies in Hong Kong and Macau to expand its market coverage. The Group

has also been actively exploring other investment opportunities which can enhance shareholders’

returns and which are within the core competence of the executive director and the controlling

shareholder of the Company.

The Proposed Investment represents a valuable opportunity for the Company to diversify into

a new business with potentially very attractive returns driven by the following factors:

First mover advantage in the Primorye region

The proposed casino resort will most likely be the first legal casino to start operating

in the Far Eastern Region of Russia since the ban of gambling in the country (except for the

four designated border zones) in 2009.

The superstructure (including foundations and shell (floors and roof)) of the main

casino and hotel building has already been constructed and the Company expects the

casino is targeted to open in the second half of 2014. As of the Latest Practicable Date, the

Company is not aware of any competing projects in the Primorye region that have started

construction.


– 34 –

Local government support

The IEZ was created by an Order By The Russian Federation signed by the then Prime

Minister Vladimir Putin on 20 August 2009. Furthermore on 23 May 2013, the Governor of

Primorsky Territory confirmed, among other things, that the Primorsky Territory Government

has no objections with regards to the investments in IEZ to be deposited by the Company as a

foreign investor.

Russia and China signed an agreement on 21 July 2008 officially ending all

outstanding territorial disputes between the two countries. The Company believes that this

agreement indicates a cordial relationship between the two countries reducing the likelihood

of any travel bans between the two countries.

Large addressable and diverse gaming market

The proposed casino resort has the advantage of being geographically close to the

target feeder markets. The IEZ’s location in North Asia provides it with exposure to 300

million people within a 2.5-hour flight.

1-hr Flight

1-hr Flight

2-hr Flight

3-hr Flight

3-hr Flight

2-hr Flight

Burma Laos Thailand

Malaysia

Singapore Indonesia

Philippines

Hong Kong Taiwan

Vietnam

Macau

Harbin Yanji

Tokyo Seoul

Busan Beijing

Cambodia

Shanghai

Dalian

Vladivostok

Selected key markets

City CountryFlight

time Population

Yanji China 1:00 na

Harbin China 1:10 10,635,791

Dalian China 1:45 6,170,000

Tokyo Japan 2:10 13,162,000

Busan South Korea 2:10 3,622,140

Seoul South Korea 2:20 10,738,269

Beijing China 2:30 19,600,000

Hong Kong China 4:40 7,112,400

Source: www.tjcn.org, www.hktdc.com, National Census

2010 of China, Japan population census 2010,

Republic of Korea Bureau of Statistics, Hong

Kong Census and Statist ics Department and

http://www.vladivostokavia.ru


– 35 –

Favourable cost structure

The casino resort project is expected to benefit from a favourable cost structure.

Unlike other Asian gaming jurisdictions, Russia does not impose any gaming tax but employs

a system of monthly levies. The amounts of levies are determined based on the number of

gaming tables and slot machines in operation but are unrelated to the amount of gaming

revenue generated. Gaming income in Russia is exempt from corporate income tax and non-

gaming income is subject to a corporate tax rate of 20%.

Selected regional gaming tax rates

0%

5%

10%

15%

20%

25%

30%

35%

45%

40%

39% 39%

17%

27%

12%

22%

10% 10%

0% 0%

Slots (per slot

per month)

Tables (per table

per month)

Race and

sportsbook

(Per month)

RUB7,500

(US$235)

RUB125,000

(US$3,917)

Per bookmaker

office: RUB125,000

(US$3,917)

Per betting point:

RUB7,000 (US$235)

South Korea Russia MacauPhilippines(b) Singapore(a)

Mass gamingVIP gaming

Monthly levy

Tax ratesTax rates

Notes:

(a) Inclusive of goods and services tax for gaming operations

(b) Include 2% gross gaming revenue remittance to charity organization, in addition to license fees of 15%

(VIP) and 25% (Mass). The remittance is not applied to VIP players sourced from junket operators

Source: Advice from the Company’s Russian legal adviser, http://asiaenglish.visitkorea.or.kr, http://iras.gov.sg, the

Terms of Reference regarding the Bagong Nayong Pilipino Manila Bay Tourism City Project and Macao

Yearbook 2012

Furthermore, the Company believes that it will benefit from lower labour costs by operating

in the Primorye region compared to jurisdictions like Macau despite an approximate 34.2%

employee welfare and pension contribution on employee salaries that the employer must pay for

in Russia. According to the Government of Macau, median monthly employment earnings for the

second quarter of 2013 was MOP12,000 (equivalent to approximately HK$11,652) and average

earnings for gaming sector employees (excluding bonuses and allowances) was MOP18,900

(equivalent to approximately HK$18,352). The average income for the Primorye region was

estimated to be RUB26,000 per month (equivalent to approximately US$815 or HK$6,318).


– 36 –

Upon Completion, Oriental Regent will be accounted for as a jointly controlled entity and

its results will be equity accounted for in the financial statements of the Group. As the casino and

resort project is still at its development and investment stage, the Company will monitor closely

the development progress of the project. The Company intends to hold its interests in the project as

a long-term investment and has no current intention to increase its proportionate ownership in the

project in the future. Any future funding of the casino project will be considered carefully and will

be made within the Group’s financial capability, including its ability to raise new funding, either

by way of equity or debt, in the future. The Company further considers the investment may result

in large orders for quality building materials such as tiles and marbles to the Company as all such

products have to be imported in Russia.

The Directors consider that the Proposed Investment is in the interests of the Company and

the Shareholders as a whole and that the terms of the Investment Agreement are fair and reasonable.

D. PROPOSED SOURCES OF FUNDING FOR THE GROUP’S PARTICIPATION IN THE

LOT 9 PROJECT UNDER THE INVESTMENT AGREEMENT

The Company intends to fund the consideration for the Proposed Investment, the subsequent

equity funding obligation and other costs and expenses in connection with the Investment Agreement

and the Company’s participation in the Lot 9 Project either by issuance of new Shares or debt

financing. The Company is not a party to any agreement in respect of any issuance of new Shares

and/or any debt financing as at the Latest Practicable Date.

If new Shares are to be issued, the Company may use its general mandate to allot, issue and

otherwise deal with Shares not exceeding in aggregate 20% of the aggregate nominal amount of the

share capital of the Company in issue as at the date of passing of the Shareholders’ resolution for

the general mandate, being 31 May 2013. In the case of a placing of new Shares, the Company will

not issue any Shares pursuant to the general mandate if the relevant price represents a discount of

20% or more to the benchmarked price of the Shares, such benchmarked price being the higher of:

(a) the closing price on the date of the relevant placing agreement or other agreement

involving the proposed issue of Shares under the general mandate; and

(b) the average closing price in the 5 trading days immediately prior to the earlier of:

(i) the date of announcement of the placing or the proposed transaction or

arrangement involving the proposed issue of the Shares under the general

mandate;


– 37 –

(ii) the date of the placing agreement or other agreement involving the proposed

issue of Shares under the general mandate; and

(iii) the date on which the placing or subscription price is fixed.

In the course of arranging any such equity or debt financing, the Company may undertake

roadshows with prospective investors or lenders prior to the SGM being held, in order to ensure

that the necessary funding is available as soon as practicable following the SGM (provided that the

necessary approvals of the Shareholders to be sought at the SGM are obtained). If new Shares are to

be issued for which listing will be sought, the Company will make such further announcement(s) as

may be required by the Listing Rules in connection with the issue of any such Shares to be issued.

E. FINANCIAL EFFECTS OF THE PROPOSED INVESTMENT

Earnings

Upon Completion, the 46%-owned Oriental Regent will be accounted for as a

jointly controlled entity of the Company and its results will be equity accounted for in

the financial statements of the Group. The Target Group recorded no turnover and some

pre-opening losses for the year ended 30 June 2013, the Directors consider that the impact

of the Proposed Investment on the Group’s earnings will be minimal immediately upon

Completion. Nevertheless, it is anticipated that the Proposed Investment will have a positive

effect on the Group’s earnings upon completion of the casino and resort project by the Target

Group as set out under the sub-section headed “C. Reasons for and benefits of the Proposed

Investment” above.

Assets and liabilities

As extracted from the interim results announcement of the Company for the six

months ended 30 June 2013, the unaudited consolidated total assets and total liabilities of

the Group were approximately HK$117.2 million and HK$6.4 million respectively. The

unaudited consolidated net asset value attributable to the Shareholders as at 30 June 2013

was approximately HK$110.8 million. As set out in Appendix IV to this circular, assuming

Completion had taken place on 30 June 2013, the unaudited consolidated pro forma total

assets and total liabilities of the Enlarged Group were approximately HK$117.2 million and

HK$6.4 million respectively. The unaudited pro forma net asset value of the Enlarged Group

was approximately HK$110.8 million, which remained at par of the unaudited consolidated

net asset value attributable to the Shareholders as at 30 June 2013.

Shareholders’ attention is drawn to the unaudited pro forma financial information of the

Enlarged Group as set out in Appendix IV to this circular.


– 38 –

F. FINANCIAL AND TRADING PROSPECTS OF THE ENLARGED GROUP

The Proposed Investment would enable the Company to invest into a new business with

potentially very attractive returns. The Lot 9 Project has the advantage of being geographically

close to the target feeder markets, i.e. the three Chinese provinces in Northeastern China,

namely, Heilongjiang, Jilin and Liaoning. In addition, Russia currently offers a very favorable

tax environment for gaming business compared to other jurisdictions. It is also expected that the

Proposed Investment will provide the Company with a first mover advantage as the casino and

resort complex on Lot 9 will most likely be the first legal casino to start operating in the Far Eastern

Region of Russia since the ban of gambling in the country (except for the four designated border

zones) in 2009. It is anticipated that the Company will be able to secure a good rate of return for its

investment.

The Group’s principal business of tiles trading and engineering operations will remain as the

single line of principal business as the Target Company will not be consolidated as a subsidiary but

will be accounted for as a jointly controlled entity and its results will be equity accounted for in

the financial statements of the Group. The Company considers that the investment in Russia may

result in large orders for quality building materials such as tiles and marbles to the Company as all

such products have to be imported in Russia. Therefore, the Company considers that the Proposed

Investment will not introduce a fundamental change of the Group’s business but can be viewed as

a supplement to the Group’s existing principal activities and will create attractive returns to the

Company and its the Shareholders in the long run.

With a solid financial foundation, a focused line of principal business together with the

planned new investment, the Group remains confident in delivering attractive returns to the

Shareholders in the long run.

G. INFORMATION IN RESPECT OF THE PARTIES

The Company has been engaged in tiles trading and engineering operations. SARL is an

investment holding company and a wholly-owned subsidiary of the Company. It is a special purpose

company which has been established for the purpose of making the investment in the casino and

resort project (through investment in Oriental Regent) and does not have any other assets.


– 39 –

New Crescent is an investment holding company and a wholly-owned subsidiary of Melco.

New Crescent is a special purpose company which has been established for making the investment

in the casino and resort project (through investment in Oriental Regent) and does not have any other

assets.

Firich is an investment holding company and a wholly-owned subsidiary of FEC. Firich is a

special purpose company which has been established for making the investment in the casino and

resort project (through investment in Oriental Regent) and does not have any other assets. FEC is a

company listed on GreTai Securities Market in Taiwan. It is primarily engaged in the manufacture,

installation and maintenance of electronic gaming machines, multi-player gaming terminals, VLT

and lottery POS. Its products are widely deployed in Macau, Mainland China, Taiwan, Korea, the

US and a number of European countries.

Elegant City currently holds 99.99% of Oriental Regent. Elegant City is ultimately owned

by Mr. Oleg Drozdov, a Russian businessman primarily engaged in construction business in the

Primorye Region, Russia. The remaining 0.01% interest in Oriental Regent is currently owned by

Mr. Oleg Drozdov. Mr. Oleg Drozdov is a shareholder of OOO Dalta-Vostok-1 (a Russian company

involved in the construction business) and OOO Kompaniya po Razvitiyu Nedvizhimosti Dalta (a

Russian company involved in the construction and real estate business). Elegant City’s principal

investment is its 99.99% interest in Oriental Regent.

Oriental Regent is an investment holding company, established under the laws of Hong Kong

on 12 August 2010. Upon completion of the acquisition of 50% interest in FGCE from Kinetic

on 26 August 2013 pursuant to the Kinetic Acquisition Agreement, Oriental Regent holds 100%

equity interest in FGCE as at the Latest Practicable Date. Kinetic is an investment holding company

established under the laws of the Seychelles and its principal business is investment holding. The

ultimate beneficial owner of Kinetic had been Mr. Dimitry Popov until 19 June 2013 since which

date the ultimate beneficial ownership has been transferred to Ms. Svetlana Ilina who, together with

her husband, operates real estate and trading businesses in Russia.

Following completion by Oriental Regent of the acquisition of 50% interest in FGCE from

Kinetic, Oriental Regent owns 100% of FGCE and Kinetic no longer has any interest whatsoever in

FGCE.

FGCE is a limited liability company established under the laws of Russia on 24 September

2010. It is the holder of the Gaming License and the lessee under the Lot 8 and 9 Lease and is

engaged in the development of a casino and resort complex on Lot 9.


– 40 –

To the best of the Directors’ knowledge, information and belief, having made all reasonable

enquiry, Firich, Elegant City, Oriental Regent, FGCE and Kinetic, and their respective ultimate

beneficial owners, are third parties independent of the Company and its connected persons.

H. THE RISK FACTORS

The Proposed Investment will involve, among other things, the following risks:

The Group has no absolute control over the Target Group

The Group will only own 46% equity interest in the Target Group upon Completion

and the remaining 54% equity interest in the Target Group will be held by other parties not

owned or controlled by the Group. Although the Group will have a significant influence over

key operating and management decisions, including but not limited to, (i) the appointment

right of two directors to the 5-member board of the directors of both Oriental Regent and

FGCE and the nomination right of the CEO of FGCE; and (ii) the provision of management

and operational advices to FGCE by SARL, the operating and management decisions of

FGCE shall be bound by the business plan and annual budget as set and unanimously

approved by the board of directors of FGCE. Furthermore, all related party transactions and

certain material transactions of the Target Group require unanimous written approval of all

of the members of the board of the relevant Project Company or the unanimous consent of

the Oriental Regent Shareholders. Lastly, all major operating and management decisions

are also governed by the terms of the Investment Agreement agreed among all Oriental

Regent Shareholders. The Group therefore has no absolute control over the Target Group.

Accordingly, there is a risk that the decisions made by the Target Group may not be in the

best interest of the Group and it may have a material adverse effect on the Group’s business,

prospects, financial condition, results and cash flow.

The Target Group has no operating track record

The Target Group is currently in an early phase of its business operations and there is

limited historical information available about the Target Group upon which the Shareholders

can base for evaluation of its business and prospects. The Target Group may not be

successful in managing and developing the casino and resort complex according to the Target

Group’s plans. Therefore, Shareholders should be aware of the Target Group’s business and

prospects in light of the risks, expenses and challenges that the Target Group will face given

its limited experience in providing gaming services and operating entertainment and leisure

businesses in a totally different market and jurisdiction.


– 41 –

The Target Group may encounter significant risks and difficulties frequently

experienced by companies with early stage operations, and such risks and difficulties may

be heightened in a rapidly changing market. Some of such risks may significantly affect the

Target Group’s ability to:

• operate, support, expand and develop the Target Group’s operations and

facilities;

• attract and retain customers and qualified employees;

• maintain effective control of the Target Group’s operating costs and expenses;

• maintain internal personnel, systems, controls and procedures to assure

compliance with the extensive regulatory requirements applicable to the gaming

business;

• respond to competitive market conditions;

• respond to changes in the Target Group’s regulatory environment;

• fulfill conditions precedent to draw down or roll over funds from credit

facilities;

• comply with covenants under the credit facilities;

• raise additional capital, as required; and

• respond to changing financing requirements.

If the Target Group is unable to successfully address the above risks, it may be unable

to operate its businesses in the manner it contemplates and generates revenues from such

projects in the amounts and within the timeframes it anticipates. The Target Group may also

be unable to meet the conditions to draw on the financing facilities in order to fund various

activities or may suffer a default under the financing facilities. If any of these events were to

occur, it would have a material adverse effect on its business, prospects, financial condition,

results of operations and cash flow.


– 42 –

The Target Group may encounter substantial cost increases or delays in the development of the casino and resort complex, which could prevent or delay the opening of such project

The casino and resort complex of the Target Group are still under development as at

the Latest Practicable Date. The completion of the construction is subject to a number of

contingencies, including adverse developments in applicable legislation, delays in obtaining

or inability to obtain necessary licences, approvals or permits, cost overruns or unanticipated

cost increases, unforeseen engineering, environmental and/or geological problems, changes

to plans and specifications, shortages of, and price increases in, energy, materials, equipment

and labour, labour disputes or work stoppages, personal injuries to workers and other

persons, disputes with and defaults by contractors and subcontractors, weather interference

or delays, fires, typhoons and other natural disasters, and other unanticipated circumstances

or cost increases that may arise. The occurrence of any of these developments could increase

the total costs or delay or prevent the construction or opening of the casino and resort

complex, which could materially adversely affect the Target Group’s business, financial

condition and results of operations.

The actual construction costs may exceed the costs currently projected and budgeted.

In addition, construction costs, particularly labour costs, may increase due to the market

practices of importing foreign labour for carrying out construction works in Russia.

Continuing increases in construction costs in the IEZ may increase the risk that construction

will not be performed on time, within budget or at all.

The Target Group may require external debt or equity financing to complete its future investment projects, which may not be available on satisfactory terms or at all

The Target Group requires additional funding in the future for the development of

the proposed casino and resort complex, which may be raised through either equity or

debt financing. The Target Group’s ability to obtain external financing on acceptable terms

depends on a variety of factors that are beyond the Target Group’s control. The ability

to raise funds from the equity market may be affected by a variety of factors which may

include the global economic and political changes, unanticipated political upheavals, terrorist

activities, events and macroeconomic conditions in Asia or China. The ability to raise funds

from the debt market may be affected by the debt market conditions, investors’ and lenders’

perceptions of, and demand for debt securities of gaming companies, credit availability and

the interest rate environment. The availability of, and likely terms for, debt financing may

also be adversely affected by developments in the treasury bonds market in the United States,

which have impacted the global credit markets in recent years. As a result, the Target Group

may not be able to obtain sufficient funding from external sources as required on terms

satisfactory to the Target Group, or at all, to finance capital requirement. If the Target Group

is unable to obtain such funding, the Target Group’s business, cash flow, financial condition,

results of operations and prospects could be materially and adversely affected.


– 43 –

The Target Group’s business is sensitive to downturns in the economy, economic

uncertainty and other factors affecting discretionary consumer spending

Demand for gaming services and leisure activities which the Target Group offers is

sensitive to downturns and uncertainty in the global and regional economy and corresponding

decreases in discretionary consumer spending, including on gaming services and leisure

activities. Changes in discretionary consumer spending or consumer preferences could be

driven by factors such as perceived or actual general economic conditions, energy, fuel and

other commodity costs, the cost of travel, employment and job market conditions, actual or

perceived levels of disposable consumer income and wealth, and consumer confidence in the

economy. These and other factors may reduce consumer demand for gaming services and

leisure activities the Target Group offers, imposes practical limits on pricing and materially

and adversely affected the Target Group’s business, financial condition and results of

operations and could affect its liquidity position.

Although recent economic data does indicate that growth may resume in a number of

developed economies such as the United States, Europe and Japan, there is no assurance that

these trends will continue or that government responses to global economic conditions will

successfully address fundamental weakness in the markets, increase consumer confidence or

increase market liquidity. Continued weakness in the global economy or in the economy of

China, where a significant number of target gaming patrons reside or where target gaming

patrons generate their income, may result in a decline in the number of patrons visiting the

Target Group’s casino or a reduction in the frequency of visits by these patrons, or may result

in these patrons visiting the casinos but spending less money. Any decrease in the growth

of, or reduction in, consumer demand for gaming and leisure activities could materially and

adversely affect gaming volume and casino revenues and, as a result, could materially and

adversely affect the Target Group’s business, financial condition and results of operations.

The Target Group may not make any dividend payment

There is no assurance that the Target Group will pay dividends, if any, in the future.

The amount and frequency of any payment of dividends by the Target Group depend on

several factors, including, its results of operations and earnings, capital requirements and

surplus, general financial conditions, applicable laws, and various other factors.


– 44 –

Any dividends which may be paid by the Target Group to the Company will be subject

to withholding tax in Russia as applicable at the relevant time. As at the date of this circular,

the applicable withholding tax rate for such payments is 15%. It is anticipated that, in due

course, a new intermediate holding company in a tax-efficient country will be established to

take advantage of available double-tax treaty arrangements.

The winnings of players in the Target Group’s casino could exceed the Target Group’s

casino winnings

The Target Group’s profits are expected to be mainly derived from the difference

between the Target Group’s casino winnings and the winnings of players in the Target

Group’s casino. Since there is an inherent element of chance in the gaming industry, the

Target Group does not have full control over its winnings or the winnings of players in its

casino. If the winnings of players in the Target Group’s casino exceed the Target Group’s

casino winnings, the Target Group may record a loss from the Target Group’s gaming

operations, which could materially and adversely affect the Target Group’s business, cash

flow, financial condition, results of operations and prospects.

Theoretical win rates for the Target Group’s casino operations depend on a variety of

factors, many of which are beyond its control

The gaming industry is characterized by an element of chance. In addition to the

element of chance, theoretical win rates are also affected by other factors, including players’

skill and experience, the mix of games played, the financial resources of players, the spread

of table limits, the volume of bets played and the amount of time players spend on gambling.

These factors, alone or in combination, have the potential to negatively impact the Target

Group’s win rates, which may materially and adversely affect the Target Group’s business,

cash flow, financial condition, results of operations and prospects.

Gaming businesses are subject to the risk of cheating and counterfeiting

Players in the casino may attempt to commit fraud or cheat in order to increase

winnings. Acts of fraud or cheating could involve the use of counterfeit currency, chips

or other tactics, possibly in collusion with the Target Group’s employees. Internal acts of

cheating could also be conducted by employees through collusion with dealers, surveillance

staff, floor managers or other casino or gaming area staff. Failure to discover such acts or

schemes in a timely manner could result in losses in the Target Group’s gaming services

business. In addition, negative publicity related to such schemes could have an adverse effect

on the Target Group’s reputation, thereby materially and adversely affecting its business,

financial condition, results of operations and cash flow.


– 45 –

Regular reviews on the operations will be conducted to prevent cheating. Each

game has a statistical theoretical expected win rate and the Target Group will examine

win statistics for any evidence of cheating when gaming win consistently varies from the

theoretical normal win inherent in the games. However, theoretical win rates depend on a

number of factors, and players in the casino or gaming areas may win more often than they

theoretically should. There is no assurance that the Target Group’s efforts to prevent cheating

will be effective and any failure to prevent cheating may materially and adversely affect its

business, financial condition, results of operations and cash flow.

The Target Group’s anti-money laundering policies and compliance with applicable

anti-money laundering laws may not be sufficient in preventing the occurrence of

money laundering activities at its casino

The casino gaming industry is prone to potential money laundering and other illegal

activities and the Target Group may not be able to completely prevent money laundering and

other illegal activities from occurring within its casino premises.

The Target Group will put in place all the controls deemed necessary to detect and

prevent money laundering in its casino operations. However, there is no assurance that the

Target Group’s anti-money laundering measures to be put in place will be totally effective

in preventing or detecting all money laundering activities. In addition, if the Target Group’s

employees or gaming promoters are found or suspected to be involved in money laundering

activities or other illegal activities, it could harm the Target Group’s reputation or corporate

image or otherwise have a material and adverse effect on the Target Group’s business, cash

flow, financial condition, results of operations and prospects.

The Target Group’s gaming patrons are expected to largely come from markets

outside Russia and many of them may own or operate other business interests and activities

unrelated to the Target Group’s business operations of which the Target Group may not have

knowledge. Accordingly, the Target Group cannot assure that the activities of the gaming

patrons comply with applicable laws and regulations, such as anti-money laundering laws or

regulations or foreign exchange controls. Any incidents of non-compliance, or allegations,

investigations or press reports relating to incidents of non-compliance with anti-money

laundering or other laws and regulations, involving the Target Group or its casino, employees

or gaming patrons, or violations of laws or regulations of jurisdictions outside the IEZ by

the Target Group’s gaming patrons, whether or not justified, could harm the Target Group’s

reputation or corporate image or otherwise have a material and adverse effect on the Target

Group’s business, cash flow, financial condition, results of operations and prospects.


– 46 –

The Target Group’s business depends on its ability to attract and retain a sufficient

number of employees to run its gaming operations

The Target Group’s success may rely on its ability to attract, train, retain and motivate

employees, including dealers, pit bosses and security personnel. Competition for employees

may increase significantly when new casinos and hotels of competitors open for business

in the IEZ. Since a lot of the employees must possess certain requisite gaming knowledge

and foreign language skills, these requirements may result in significant competition among

gaming operators in the IEZ for eligible employees. The competition may make it more

difficult to attract and retain employees.

The Target Group may not able to successfully compete for the limited supply of

qualified casino employees. The expected increase in competition for qualified gaming

industry personnel could result in a further significant increase in labour costs, which could

have a material and adverse effect on the Target Group and its financial condition and results

of operations. If the Target Group is unable to attract, retain and train qualified casino

employees, its ability to compete in the IEZ may be negatively impacted, and its business,

cash flow, financial condition, results of operations and prospects may be adversely affected.

The Target Group may not be able to renew the land lease on satisfactory terms or at all

The Target Group will operate its casino and resort complex on land subject to the

Lot 8 and 9 Lease expiring in 2025. The Target Group may not able to renew the Lot 8

and 9 Lease on commercially reasonable terms upon its expiration. In addition, there is no

assurance that the Target Group will be able to relocate its casino to comparable locations

or lease other properties on commercially reasonable terms in the event of a termination

of the Lot 8 and 9 Lease. If the Target Group is unable to renew or replace the Lot 8 and 9

Lease, or if its future rental rates are significantly higher than the current rates, its operations

could be disrupted and its business, cash flow, results of operations, financial condition and

prospects could be materially and adversely affected.

The Lot 8 and 9 Lease may be terminated by the lessor if FGCE fails to comply with the

agreed construction schedule

The lessor under the Lot 8 and 9 Lease would have a right to terminate the Lot 8 and 9

Lease if FGCE were to fail to comply with the agreed construction schedule in respect of the

Lot 9 Project (which requires first stage construction to be completed in the fourth quarter of

2014 and second stage construction to be completed in the second quarter of 2015).


– 47 –

The Target Group’s Gaming License may be suspended, amended or terminated prior

to the end of its terms or may not be renewed

The Target Group will conduct its gaming operations in Russia under the Gaming

License, which does not have an expiry date. The continued validity and extension of the

Gaming License are conditioned upon the Target Group’s compliance with its terms and

conditions. The Target Group’s failure to comply with any of these terms and conditions

could result in the suspension, amendment, termination or non-renewal of the Gaming

License, which may have a material adverse effect on the Target Group’s business, financial

condition and results of operations.

The Target Group may be involved in legal and other proceedings arising out of its

operations

The Target Group may be involved in disputes with various parties involved in the

operation of its property, including contractual disputes with suppliers or property damage

or personal liability claims. Regardless of the outcome, these disputes may lead to legal

or other proceedings and may result in substantial costs and the diversion of resources and

management’s attention. The Target Group may also have disagreements with regulatory

bodies in the course of its operations, which may subject the Target Group to administrative

proceedings and unfavorable decisions that may result in penalties being imposed on it. In

such cases, the Target Group’s business, financial condition, results of operations and cash

flows could be materially and adversely affected.

Increase in competition

The gaming and gaming-related businesses in the IEZ are expected to be competitive

and the Target Group could encounter intense competition as other gaming operators could

open new projects in the IEZ in the future. The Target Group currently only secured Lot 9 in

IEZ for the operation of the proposed casino and resort complex while there are a number of

other lots in the IEZ designated for operations of casinos, which could be taken up and run

by potential competitors of the Target Group.

The potential opening of additional casinos and resorts by competitors may result in a

significant increase in gaming tables and slot machines as well as hotels, other entertainment

and convention centre facilities, services and amenities in the IEZ, which will intensify

competition in the IEZ. The demand for gaming facilities may not increase in line with or

may outpace the supply of gaming tables and slot machines in the future. Accordingly this

may lead to a decrease in the Target Group’s revenue or the Target Group may not be able to

maintain or grow its market share in the future or otherwise compete effectively.


– 48 –

Moreover, casinos and integrated gaming resorts are becoming increasingly popular

in Asia, giving rise to more opportunities for industry participants and increasing regional

competition. The competitors in Asia include many of the largest gaming, hospitality, leisure

and resort companies in the world. Some of these current and future competitors are larger

than the Target Group may have more diversified resources and greater access to capital to

support their developments and operations in Asia.

The Target Group will compete with other casino, hotel and resort operators in the

region, such as Macau, South Korea, North Korea, Singapore, Malaysia, the Philippines,

Cambodia, Australia, New Zealand and elsewhere in the world, including Las Vegas and

Atlantic City in the US. In addition, other countries may in future legalize casino gaming,

including Japan and Taiwan. The Target Group also competes with cruise ships operating in

the region that offer gaming facilities. The increase in the number of gaming venues in Asia

could also materially and adversely affect the Target Group’s business, financial condition

and results of operations.

Risks relating to the Russian regulatory, legal, tax and political environment

The Target Group operates in Russia and there are a number of risks associated with

operating in Russia, including, but not limited to, those set forth below.

(i) Political instability, changes in government or in economic policy and arbitrary government actions could adversely affect the Target Group’s business

Russia has experienced a great deal of political and social instability in the

past. Until 1991, it had a Communist Government with doctrines and ideologies

totally different to the rest of the world. There is no guarantee that such ideologies or

doctrines may not be revived such that the Target Group’s operations and legitimacy

may be affected or severely challenged. Changes in government or in economic

policies, unlawful, arbitrary or selective government action, corruption or the

occurrence of armed conflicts, territorial disputes, terrorist activities or social unrest

could disrupt the Target Group’s operations or increase the Target Group’s costs.

Political conditions in Russia were highly volatile in the 1990s, as the national

government sought to manage the difficult transition from a planned to a market

economy and surrendered authority to the regions, but the political situation has

stabilised since 2000 under the current President, Mr. Vladimir Putin, and central

authority has been restored. However, shifts in governmental policy and regulation in

Russia, which are less predictable than in many other developed Western countries,

could negatively affect the Russian economic and political environment and may

have an adverse impact on the Target Group’s operations and profitability. In the

international sphere, Russia has adopted a more assertive approach to the definition


– 49 –

and pursuit of its interests. To some observers, Russia has appeared on several

occasions to have used economic leverage or control over oil and gas supply to

achieve political objectives. If Russia were to adopt restrictive economic measures

against countries that are important to the Target Group’s business, or if trade between

Russia and such countries were otherwise to be interrupted for political reasons,

the Target Group’s business, financial condition and results of operations could be

materially and adversely affected.

Over the past several years, Russia has been involved in conflicts, both

economic and military, with other countries, including members of the Commonwealth

of Independent States. On several occasions, this has resulted in the deterioration

of Russia’s relations with other members of the international community, including

the US and various countries in Europe. For example, recently Russia and the US

have been engaged in diplomatic disputes over the handling of Edward Snowden, the

American asylum seeker currently residing in Russia. A military conflict in August

2008 between Russia and Georgia involving South Ossetia and Abkhazia resulted in

the deterioration of Russia’s relations with certain other countries. The emergence

of new or escalated tensions between Russia and other countries, including any

escalation of such conflicts, or the imposition of economic or other sanctions in

response to the tensions, could negatively affect economies in the region, including the

Russian economy.

In the economic sphere, the use of governmental power against particular

companies or persons, for example through tax, environmental or prosecutorial

authorities, could adversely affect Russia’s economic climate and, if directed against

the Target Group’s companies, its substantial shareholders, its ultimate beneficial

owners or its key employees, it could also affect the Target Group’s business, financial

condition and results of operations. Russian authorities have recently challenged

some Russian companies and prosecuted their executive officers and shareholders on

tax evasion and related charges. In some cases, the results of such prosecutions and

challenges have resulted in significant claims against companies for unpaid taxes and

the imposition of prison sentences on individuals.

Nonetheless, and although the Target Group will seek to arrange its affairs in

compliance with the law, including the tax laws, the Directors cannot exclude the

possibility that, for the reasons described above, members of the Target Group may be

charged with violations of law, such as tax evasion, that such charges may be upheld

by a Russian court and that, as a result, the Target Group’s assets in Russia may be

subject to forfeiture or effective nationalization.


– 50 –

(ii) Differences in the legal systems and laws of Russia may create an

unfamiliar environment for investment and business activity and could

subject the Target Group to liabilities that may not have been envisaged or

contemplated

Differences in the legal systems and laws of Russia may create an unfamiliar

environment for investment and for business activity. Russia is still developing the

legal framework required by a market economy. In many instances fundamental

laws have only recently become effective. The limited experience of members of the

judiciary and the difficulty of enforcing court decisions and governmental discretion

in instigating, joining and enforcing claims could prevent the Target Group or its

investors from obtaining effective redress in court proceedings, including in respect of

expropriation or nationalization. The risks associated with the legal system of Russia

include:

• the untested nature of the independence of the judiciary and its immunity

from economic, political and nationalistic influences;

• the possible inconsistencies among laws, decrees and governmental and

ministerial orders and resolutions;

• the possible lack of judicial or administrative guidance on interpreting

the laws;

• a possibly high degree of discretion on the part of the governmental

authorities;

• possibly conflicting local, regional and federal laws and regulations;

• the possible lack of experience of judges and courts in interpreting new

legal norms;

• the possible unpredictability of enforcement of judicial orders and

arbitral awards;

• substantial gaps in the legal framework due to the delay or absence of

implementing regulations for certain legislation;

• possible expropriation and nationalization of the Target Group’s assets;


– 51 –

• possible corruption within the judiciary and the governmental

authorities; and

• bankruptcy procedures that may not be well developed and may be

subject to abuse.

Any or all of these weaknesses could affect the Target Group’s ability to

enforce its legal rights in the relevant jurisdiction, including rights under its contracts,

or to defend against claims by others in such jurisdiction.

(iii) Uncertainties relating to the tax systems of Russia may complicate the

Target Group’s tax planning and business decisions

The tax systems of Russia are still evolving and, as such, are often confusing

and difficult to interpret and apply. For example, Russian tax laws, regulations

and court practice are subject to frequent changes and varying interpretation and

inconsistent and selective enforcement. In some instances, although it may be viewed

as contrary to Russian constitutional law, the Russian tax authorities have applied

certain new taxes retroactively, issued tax claims for periods for which the statute of

limitations had expired and reviewed the same tax period multiple times. Furthermore,

it is possible that the current interpretation of the law or understanding of practice may

change or, indeed, that the law may be changed with retroactive effect. In practice,

Russian tax authorities generally interpret the tax laws in ways that do not favour

taxpayers, who often have to resort to court proceedings to defend their position

against the tax authorities. Moreover, court decisions in one jurisdiction of Russia may

provide little, if any, precedent for other jurisdictions.

Russian tax laws and regulations are subject to varying interpretations

and changes, which could occur frequently. Management’s interpretation of such

legislation as applied to the transactions and activities of the Target Group may be

challenged by the relevant local, regional and federal authorities, which have wide

discretion to do so. Recent developments in the Russian environment suggest that

the Russian authorities are becoming more active in seeking to enforce, through the

Russian court system, interpretations of the tax legislation, which may be selective

for particular tax payers and different from the authorities’ previous interpretations or

practices. Any of these developments will increase the Target Group’s tax rate going

forward and could result in material liability for additional tax, penalties and interest,

which will adversely impact the Target Group’s financial condition.


– 52 –

I. POTENTIAL CLAIM PERTAINING TO ORIENTAL REGENT

Elegant City purchased 4,999 Oriental Regent Shares, representing 49.99% of the issued

share capital of Oriental Regent, from Diamond Fortune pursuant to transfers dated 5 August

2013. On 23 August 2013, the Company’s financial adviser in respect of the Proposed Investment

received a letter from a person claiming to be the spouse of the sole shareholder and director of

Diamond Fortune, Mr. Aleksey Simanchuk, referring to ongoing divorce proceedings in Russia.

Mrs. Simanchuk asserts in her letter that sales of shares in Diamond Fortune owned by Mr.

Simanchuk and any related companies such as Oriental Regent and FGCE require her spousal

consent, and in the absence of such consent are unlawful. The letter states that Mrs. Simanchuk has

become aware of a transfer of Mr. Simanchuk’s shares in Diamond Fortune to Mr. Drozdov made

without her consent.

The Reorganization does not involve a transfer of shares in Diamond Fortune held by Mr.

Simanchuk. The Company has taken Russian, British Virgin Islands and other legal advice in

connection with the matters referred to in Mrs. Simanchuk’s letter dated 23 August 2013 and is

satisfied that there is no valid legal basis for any claim in respect of those matters which could

adversely affect the Reorganization or any other aspect of the transaction described in this circular.

J. IMPLICATIONS UNDER THE LISTING RULES

The Proposed Investment constitutes a major transaction for the Company under the Listing

Rules, as the assets ratio (as defined in the Listing Rules) in respect of the Proposed Investment

exceeds 25% but is below 100%. The Proposed Investment also constitutes a connected transaction

for the Company under Chapter 14A of the Listing Rules, because New Crescent is an associate

of Mr. Lawrence Ho, who is the controlling shareholder of the Company holding 229,856,232

Shares (representing approximately 36.83% of the total issued share capital of the Company) as at

the Latest Practicable Date through Quick Glitter Limited, a company which is wholly owned by

him. Accordingly, the Proposed Investment is subject to reporting, announcement and independent

shareholders’ approval requirement under Chapter 14A of the Listing Rules. Mr. Ho and his

associates will abstain from voting in respect of the resolution to be proposed at the SGM to

approve the Proposed Investment.

Save for Mr. Ho, none of the Directors has a material interest in the Proposed Investment

which required him to abstain from voting on the board resolution approving the Proposed

Investment. As a result of his material interest described above, Mr. Ho abstained from voting on

the board resolution approving the Proposed Investment.

The Investment Agreement is subject to a number of conditions. There is no assurance

that the investment contemplated by the Investment Agreement will be completed and

Shareholders and potential investors should, accordingly, exercise caution when dealing in the

Shares.


– 53 –

The Company confirms that, based on Russian legal advice and the Russian due

diligence investigation, the gambling activities contemplated by the Investment Agreement

are lawful in the IEZ. The Company has also been advised that gambling activities conducted

wholly in Russia do not contravene the Hong Kong Gambling Ordinance. Shareholders and

potential investors should note that, pursuant to Guidance issued by the Stock Exchange

in 2003 relating to “Gambling Activities Undertaken by Listing Applicants and/or Listed

Issuers”, the Stock Exchange, depending on the circumstances of the case, may direct the

Company to take remedial actions and/or may suspend dealings in, or may cancel the listing

of, the Company’s securities pursuant to Rule 6.01 of the Listing Rules if the operation of the

proposed gambling activities fails to comply with applicable laws in Russia and/or contravenes

the Hong Kong Gambling Ordinance.

K. THE INDEPENDENT BOARD COMMITTEE AND THE INDEPENDENT

FINANCIAL ADVISER

The Independent Board Committee, made up of all independent non-executive Directors,

namely, Mr. Tsui Yiu Wa Alec, Mr. Pang Hing Chung, Alfred and Dr. Tyen Kan Hee, Anthony, has

been established to advise the Independent Shareholders in respect of the Proposed Investment.

Odysseus has been appointed as the independent financial adviser to advise the Independent Board

Committee and the Independent Shareholders in this respect.

L. RECOMMENDATIONS IN RESPECT OF VOTING

The Directors consider that the Proposed Investment is in the interests of the Company and

the Shareholders as a whole and that the terms of the Investment Agreement are fair and reasonable.

Accordingly, the Directors recommend that the Independent Shareholders vote in favour of the

resolution to be proposed at the SGM to approve the Proposed Investment.

Your attention is drawn to (i) the letter from the Independent Board Committee in respect

of the Proposed Investment which is set out on page 60 of this circular; and (ii) the letter of

advice from Odysseus in respect of the Proposed Investment which is set out on pages 61 to 83

of this circular. The Independent Board Committee, having taken into account of the advice and

recommendation of Odysseus, considers the terms of the Investment Agreement are on normal

commercial terms, fair and reasonable and in the interests of the Company and the Shareholders

as a whole. Accordingly, the Independent Board Committee and Odysseus recommend that the

Independent Shareholders vote in favour of the resolution to be proposed at the SGM to approve the

Proposed Investment.


– 54 –

(III) GRANT OF OPTIONS TO A DIRECTOR AND CONTROLLING SHAREHOLDER OF

THE COMPANY

On 10 July 2013, following the publication of the Company’s announcement relating to the

Proposed Investment, the Board resolved (with the approval of all the independent non-executive

Directors) to grant Options to subscribe for 20,000,000 Shares to Mr. Lawrence Ho under the Share

Option Scheme, in connection with his appointment as a non-executive Director and Chairman of

the Board.

The Shares to be issued on exercise of the Options to be granted to Mr. Ho represent

approximately 3.20% of the Company’s existing issued share capital. The grant of Options to Mr.

Ho is conditional on approval by the Shareholders at the SGM, at which all connected persons of

the Company (including Mr. Ho and his associates) must abstain from voting in favour of the grant.

If approval by the Shareholders is not obtained, all the Options conditionally granted to Mr.

Ho will lapse and cease to be of any effect.

A. SUMMARY OF THE TERMS OF THE GRANT OF OPTIONS

Date of grant : 10 July 2013, conditional on Shareholders’ approval at the

SGM

Exercise price of the

Options

: HK$3.46 per Share, which represents the highest of (i)

HK$3.46 per Share, being the latest available closing

price of the Shares (on 7 June 2013) stated in the Stock

Exchange’s daily quotations sheet as at the date of grant;

(ii) HK$3.384 per Share, being the average of the latest

available closing prices stated in the Stock Exchange’s

daily quotations sheet for the five (5) business days

immediately preceding the date of grant; and (iii) HK$0.05

being the nominal value of a Share.

Closing price of the

Shares on the Latest

Practicable Date

: H K $7.40 p e r S h a r e , r e p r e s e n t i n g a p r e m i u m o f

approximately 113.9% over the exercise price of the Options

Number of Options

granted

: Options to subscribe for 20,000,000 Shares


– 55 –

Vesting conditions of

the Options

: (a) 25% of the Options will vest on completion of the

Proposed Investment, or if that project does not

proceed, on closing of any alternative gaming project

which the Company may enter into to replace that

project.

(b) 25% of the Options will vest on the first anniversary

of the date referred to in (a) above.

(c) 25% of the Options will vest on the second

anniversary of the date referred to in (a) above.

(d) 25% of the Options will vest on the third anniversary

of the date referred to in (a) above.

Performance target : No performance target must be achieved before Options can

be exercised.

Amount payable on

application or

acceptance of the

Options

: HK$1.00 is payable on acceptance of the Options.

Rights attached to the

Shares to be issued

on exercise of the

Options

: The Shares to be issued upon the exercise of the Options

shall be subject to all the provisions of the Company’s Bye-

laws for the time being in force and shall rank pari passu

with the Shares then existing in all respects, including the

entitlement of receiving dividends and other distributions

the record date for which is on or after the date of allotment

and issue of those Shares.

Prior to being registered as the holder of those Shares to

be issued upon the exercise of the Options in the register

of members of the Company, the holder of Options shall

not have any voting rights, or rights to participate in any

dividends or distributions of the Company, or any rights

arising on a liquidation of the Company, or any rights as

to transfer, in respect of the Shares to be issued upon the

exercise of the Options.


– 56 –

Other : If Mr. Ho ceases to be the Chairman for any reason, all

unvested Options at the time of such cessation will lapse.

Vested Options would be exerciseable for a period of 5

years from the date of grant.

B. IMPLICATIONS UNDER THE LISTING RULES

Pursuant to Rule 17.04(1) of the Listing Rules, where any grant of options to a substantial

shareholder and/or his associates would result in the shares issued and to be issued upon exercise

of all options granted and to be granted (including options exercised, cancelled and outstanding) to

the substantial shareholder and/or his associates in the 12-month period up to and including the date

of such grant (i) exceeding 0.1% of the shares in issue; and (ii) having an aggregate value, based on

the closing price of the shares on the date of grant, in excess of HK$5 million, the grant of options

to the substantial shareholder and/or his associates must be approved by shareholders of the listed

issuer at a general meeting at which all connected persons of the listed issuer shall abstain from

voting in favour at such general meeting.

Pursuant to Rule 17.03(4) of the Listing Rules, where a grant of options to a grantee will

result in the shares issued and to be issued upon exercise of all options granted and to be granted

to him (including exercised, cancelled and outstanding options) in the 12-month period up to and

including the date of grant exceeding 1% of the shares in issue, the grant of options to the grantee

must be approved by shareholders of the listed issuer at a general meeting at which the grantee and

his associates shall abstain from voting.

Pursuant to Rule 17.04(1) of the Listing Rules, each grant of options to a director, chief

executive or substantial shareholder of the listed issuer, or any of their respective associates, must

be approved by the independent non-executive directors of the listed issuer.

The Shares to be issued upon exercise of the Options to be granted to Mr. Ho, a substantial

shareholder, represent approximately 3.20% of the Company’s existing issued share capital and

have an aggregate value of approximately HK$69.2 million, based on the closing price of HK$3.46

per Share (on 7 June 2013), being the latest available closing price of the Shares as at the date of

grant. Accordingly, the grant of the Options to Mr. Ho falls within the ambits of Rule 17.04(1) and

Rule 17.03(4) of the Listing Rules and is therefore subject to the approval of the Shareholders at the

SGM, at which all connected persons of the Company (including Mr. Ho and his associates) must

abstain from voting in favour of the grant.


– 57 –

The following table specifies details of the connected persons of the Company, together with

their shareholdings, who are required to abstain from voting in favour of the resolution to approve

the grant of Options to Mr. Ho at the SGM:

Number of

Shares held

as at Latest

Practicable Date

Approximate

shareholding

percentage

Quick Glitter Limited (Note) 229,856,232 36.83%

Mr. Wang, John Peter Ben 79,949,990 12.81%

Note: Quick Glitter Limited is wholly owned by Mr. Ho.

As at the Latest Practicable Date, no notice has been received by the Company from any

connected person of the Company of his or its intention to vote against the resolution to be

proposed at the SGM to approve the grant of Options to Mr. Ho.

To the best of the Directors’ knowledge, information and belief, having made all reasonable

enquiries, as at the Latest Practicable Date, there was no voting trust or other agreement or other

arrangement or understanding (other than an outright sale) entered into by or binding upon any

Shareholder and there was no obligation or entitlement of any Shareholder whereby he has or may

have temporarily or permanently passed control over the exercise of the voting right in respect of

his Shares to a third party, either generally or on a case-by-case basis.

No Directors are trustees of the Share Option Scheme or have a direct or indirect interest in

the trustees of the Share Option Scheme.

At a Board meeting held on 10 July 2013 following the publication of the Company’s

announcement relating to the Proposed Investment, the Directors (including all the independent

non-executive Directors) resolved to grant Options to subscribe for 20,000,000 Shares to Mr. Ho, in

connection with his appointment as a non-executive Director and Chairman of the Board.


– 58 –

C. REASONS FOR THE GRANT OF OPTIONS TO MR. HO

Mr. Lawrence Ho was appointed as a non-executive Director and Chairman of the Board

on 10 July 2013. The grant of Options to Mr. Ho is designed to compensate Mr. Ho fairly and

equitably in accordance with market rates and practice as he will not receive any director’s fee

for acting as non-executive chairman of the Company, and to provide incentive to him for his

contribution to the Group in the future. Mr. Ho is currently co-chairman and chief executive officer

of Melco Crown Entertainment Limited (“MCE”), an operator of casino gaming and entertainment

casino resort facilities in Asia, and the chairman and chief executive officer of Melco, a major

shareholder of MCE. The Board believes that the in-depth knowledge of Mr. Ho in the gaming

and entertainment sector and his extensive business network and connections in that sector are

important to the development of the new gaming and casino business of the Group in Russia.

D. INFORMATION ON THE OPTIONS GRANTED UNDER THE SHARE OPTION

SCHEME AND THE SCHEME MANDATE LIMIT

The maximum number of Shares which may be issued upon exercise of all Options granted

and to be granted under the Share Option Scheme is 10% of the Shares in issue as at the adoption

date of the Share Option Scheme on 7 July 2011, being 23,793,958 Shares of HK$0.1 each

(adjusted to 47,587,916 Shares of HK$0.05 each after the share subdivision of the Company which

become effective on 3 June 2013) (the “Scheme Mandate Limit”). Since the adoption of the

Share Option Scheme, the Company has granted Options (other than the Options to subscribe for

20,000,000 Shares conditionally granted to Mr. Ho on 10 July 2013) entitling the holders thereof to

subscribe for a total of 12,058,000 Shares, representing 25.34% of the Scheme Mandate Limit. The

Options to subscribe for 20,000,000 Shares conditionally granted to Mr. Ho represent 42.03% of the

Scheme Mandate Limit.

E. RECOMMENDATION IN RESPECT OF VOTING

In light of the reasons stated in the sub-section headed “C. Reasons for the grant of Options”

above, the Directors (including all the independent non-executive Directors) consider that the grant

of Options to Mr. Lawrence Ho is in the interests of the Company and its shareholders as a whole.

Accordingly, the Directors, (including all the Independent Non-executive Directors) recommend the

Shareholders (other than all connected persons of the Company, who must abstain from voting in

favour of the grant) to vote in favour of the ordinary resolution approving the grant of Options to

Mr. Lawrence Ho as set out in the notice of SGM.


– 59 –

In light of the reasons stated in the sub-section headed “C. Reasons for the grant of Options”

and having considered the terms of the proposed grant of Options, all the independent non-

executive Directors consider that the grant of Options to Mr. Lawrence Ho is fair and reasonable

so far as the Independent Shareholders are concerned. Accordingly, the Directors (including the

independent non-executive Directors) recommend the Independent Shareholders and Shareholders

to vote in favour of the ordinary resolution approving the grant of Options to Mr. Lawrence Ho as

set out in the notice of SGM.

(IV) SGM

The notice of the SGM is set out on pages SGM-1 to SGM-3 of this circular. Whether or not

you are able to attend the SGM, you are requested to complete and return the accompanying form of

proxy in accordance with the instructions printed thereon to the Hong Kong branch share registrar

and transfer office of the Company at 17M Floor, Hopewell Centre, 183 Queen’s Road East,

Wanchai, Hong Kong as soon as possible and in any event not less than 48 hours before the time

appointed for the holding of the SGM or any adjournment thereof (as the case may be). Completion

and return of the form of proxy will not preclude you from attending and voting in person at the

SGM or any adjournment thereof should you so wish.

(V) ADDITIONAL INFORMATION

Your attention is also drawn to the additional information as set out in the appendices to this

circular.

Yours faithfully

For and on behalf of

SUMMIT ASCENT HOLDINGS LIMITED

Wang, John Peter Ben

Deputy Chairman and Executive Director

LETTER FROM THE INDEPENDENT BOARD COMMITTEE

– 60 –

The following is the text of a letter of recommendation from the Independent Board

Committee to the Independent Shareholders prepared for the purpose of inclusion in this circular.



(Stock Code: 102)

30 September 2013

To the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTIONIN RELATION TO PROPOSED INVESTMENT IN


We have been appointed as members of the Independent Board Committee to advise you

in respect of the terms of the Proposed Investment, details of which have been set out in the

letter from the Board contained in the circular to the Shareholders dated 30 September 2013 (the

“Circular”), of which this letter forms part. Terms defined in the Circular shall have the same

meanings when used herein unless the context otherwise requires.

Having considered the terms of the Proposed Investment, and the advice and

recommendation of Odysseus in relation to the Proposed Investment as set out on pages 61 to 83

of the Circular, we are of the opinion that the terms of the Investment Agreement are on normal

commercial terms, fair and reasonable and in the interests of the Company and the Shareholders as

a whole. We therefore recommend the Independent Shareholders to vote in favour of the resolution

to be proposed at the SGM to approve the Proposed Investment.

Yours faithfully


the Independent Board Committee

Pang Hing Chung, Alfred Tsui Yiu Wa, Alec Tyen Kan Hee, Anthony

Independent Non-executive

Director


Director


Director

LETTER FROM ODYSSEUS

– 61 –

The following is the full text of the letter of opinion from Odysseus Capital Asia Limited to

the Independent Board Committee and the Independent Shareholders in relation to the Investment

Agreement and the transactions contemplated thereunder, for the purpose of incorporation in this

circular.

ODYSSEUS CAPITAL ASIA LIMITED

Room 2112-13, Shui On Centre,

6-8 Harbour Road, Wan Chai

Hong Kong

30 September 2013

To the Independent Board Committee and

the Independent Shareholders

Dear Sir or Madam,

MAJOR AND CONNECTED TRANSACTIONIN RELATION TO PROPOSED INVESTMENT IN A GAMING AND

RESORT DEVELOPMENT PROJECT IN THE RUSSIAN FEDERATION

INTRODUCTION

We refer to our appointment as the independent financial adviser to the Independent Board

Committee and the Independent Shareholders in relation to the Investment Agreement dated 23

August 2013. Pursuant to the Investment Agreement, upon completion of the Reorganization,

SARL, a wholly-owned subsidiary of the Company, shall subscribe for 46% in the enlarged issued

share capital of Oriental Regent. Among the Oriental Regent Shareholders is New Crescent which

is an associate of the non-executive Director and Chairman of the Board, Mr. Lawrence Ho,

and accordingly, the Investment Agreement constitutes a connected transaction of the Company.

Relevant details of the Investment Agreement are respectively set out in the Letter from the Board

(the “Board Letter”) contained in the circular dated 30 September 2013 issued by the Company

(“Circular”), of which this letter forms part. Unless otherwise stated, terms defined in the Circular

are to have the same meanings throughout this letter.


– 62 –

Oriental Regent is an investment holding company which, upon completion of the

Reorganization, is to hold 100% of FGCE. FGCE currently holds a gaming license awarded by the

Administration of the Primorye Region in Russia which will enable the conduct of gaming activities

having been granted for an indefinite period since 22 April 2012. FGCE is also the tenant of two

land lots in the IEZ, namely Lot 8 and Lot 9. Pursuant to the above, upon Completion, Oriental

Regent will hold 100% of FGCE and the Company will therefore be indirectly interested in 46%

of the aforementioned gaming and resort development in Russia through its investment in Oriental

Regent.

The Proposed Investment constitutes a major transaction for the Company under the Listing

Rules as the assets ratio (as defined in the Listing Rules) in respect of the Proposed Investment

exceeds 25% but is below 100%. The Investment Agreement also constitutes a connected

transaction for the Company under Chapter 14A of the Listing Rules, by virtue of New Crescent,

being an associate of Mr. Lawrence Ho who is the controlling shareholder of the Company, holds

229,856,232 Shares (representing approximately 36.83% of the total issued share capital of the

Company) as at the Latest Practicable Date. Accordingly, the Investment Agreement is subject to

independent shareholders’ approval at a special general meeting of the Company. Based on the

foregoing, Mr. Ho and his associates will abstain from voting at the SGM to be convened in order to

consider, and if thought fit, the approval of the Investment Agreement.

The Independent Board Committee comprising three non-executive Directors, namely, Mr.

Pang Hing Chung, Alfred, Mr. Tsui Yiu Wa, Alec and Dr. Tyen Kan Hee, Anthony, has been formed

to advise the Independent Shareholders on the terms of the Proposed Investment, being the entering

into of the Investment Agreement.

We have been appointed as independent financial adviser to advise the Independent Board

Committee and the Independent Shareholders in respect of the Proposed Investment, and to give

our opinion relating the Proposed Investment as to whether it is on normal commercial terms,

fair and reasonable and in the interests of the Company and the Shareholders as a whole, for the

Independent Board Committee’s consideration when making its recommendation to the Independent

Shareholders on how to vote at the SGM.

BASIS OF OUR OPINION

In formulating our opinion, we have relied on the statements, information, opinions and

representations contained or referred to in the Circular and/or provided to us by the Company, the

Directors and the management. We have assumed that all statements, information, opinions and

representations contained or referred to in the Circular and/or provided to us were true, accurate and

complete at the time they were made and continued to be so as at the date of the Circular.


– 63 –

We have no reason to believe that any statements, information, opinions or representations

relied on by us in forming our opinion is untrue, inaccurate or misleading, nor are we aware of

any material facts the omission of which would render the statements, information, opinions or

representations provided to us untrue, inaccurate or misleading. We have assumed that all the

statements, information, opinions and representations for matters relating to the Group contained or

referred to in the Circular and/or provided to us by the Company, the Directors and the management

have been reasonably made after due and careful enquiry. We have relied on such statements,

information, opinions and representations and have not conducted any independent investigation

into the business, financial conditions and affairs or the future prospects of the Group. In relation to

the third party expert, i.e. the independent valuer, namely American Appraisal China Limited (the

“Independent Valuer”), providing valuation relevant to the Proposed Investment for inclusion in this

Circular, we have taken all reasonable and necessary steps to comply with the requirements set out

in Rule 13.80 of the Listing Rules and we are not aware of any issues that shall be brought to the

Independent Shareholders’ attention. The steps taken by us include the followings:

i) Discussing with the Independent Valuer with respect to their expertise and any current

or prior relationships with the Company, other parties to the Investment Agreement

and connected persons of either the Company or other parties to the Investment

Agreement;

ii) Reviewing the terms of their engagements (having particular regard to the scope of

work, whether the scope of work is appropriate to the valuation required to be given

and any limitation on the scope of work which might adversely impact on the degree

of assurance given by the valuation report); and

iii) Save for the information as disclosed in the Circular, we are not aware that the

Company or other parties to the Investment Agreement has made formal or informal

representation to the Independent Valuer.

We consider that we have been provided with sufficient information to enable us to reach an

informed view. We have not, however, for the purpose of this exercise, conducted any independent

verification of such information or any independent in-depth investigation or audit into the

business, affairs, financial position or future prospects of the Company, or any of their respective

subsidiaries or associates nor have we carried out any independent verification of the information

provided by the Company. Our opinion is based on the information made available to us as at the

Latest Practicable Date. Shareholders should note that subsequent developments (including any

material change in market and economic conditions and regulatory framework, in particular those

with respect to the Russian market and gaming industry) may affect and/or change this opinion and

that we do not have any obligation to update, revise or reaffirm this opinion.


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PRINCIPAL FACTORS AND REASONS CONSIDERED

In formulating our opinion in respect of the Proposed Investment, we have considered the

following principal factors and reasons:

1. Background and Financial Information of the Group

The Group is principally engaged in tiles trading and engineering operations. The

following sets out the key audited financial information of the Group for the past three

financial years.

For the year ended

31 December (audited)

2012 2011 2010

HK$’000 HK$’000 HK$’000

Turnover 9,845 72,333 89,034

Operating expenses (8,976) (12,772) (17,020)

Gross profit/(loss) 2,968 15,920 18,331

Gross profit/(loss) margin 30.1% 22.0% 20.6%

(Loss)/Profit for the year (6,008) 1,975 11,346

As at 31 December

(audited)

2012 2011 2010

HK$’000 HK$’000 HK$’000

Net asset value 29,328 33,480 224,887

Cash and cash equivalents 25,603 28,877 334

Source: Company’s annual reports


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(i) Financial year ended 31 December 2011

According to the annual report of the Company for the year ended 31 December

2011 (the “AR 2011”), the turnover of the Group was approximately HK$72.33

million for the year ended 31 December 2011, which represented a decrease of

approximately 18.76% as compared to that for the year ended 31 December 2010

of approximately HK$89.03 million. As disclosed in the AR 2011, such decrease

in turnover was mainly attributable to the uncertainties associated with global and

local economies and that potential customers became more conservative in their cost

budget. As a result, they started to replace their imported products with those from

the PRC. The Group recorded a profit attributable to Shareholders of approximately

HK$1.98 million for the year ended 31 December 2011 whilst it recorded a profit

attributable to Shareholders of approximately HK$11.35 million for the year ended 31

December 2010.

(ii) Financial year ended 31 December 2012

According to the annual report of the Company for the year ended 31 December

2012 (the “AR 2012”), the turnover of the Group was approximately HK$9.85 million

for the year ended 31 December 2012, which represented a decrease of approximately

86.39% as compared to that for the year ended 31 December 2011 of approximately

HK$72.33 million. As disclosed in the AR 2012, such decrease in turnover reflected

a difficult period predominantly due to a weak order book. The Group recorded a

loss attributable to Shareholders of approximately HK$6.01 million for the year

ended 31 December 2012 whilst it recorded a profit attributable to Shareholders of

approximately HK$1.98 million for the preceding financial year. As reported in the

AR 2012, potential customers had become more selective in supplier assessment and

introduced more stringent tender requirements that limited the Company’s market

opportunities. Gross profit plummeted 81.36% from approximately HK$15.92 million

for the year ended 31 December 2011 to approximately HK$2.97 million for the year

ended 31 December 2012.

(iii) Business diversification

On the back of the unsatisfactory performance of the Group coupled with

uncertainties in the markets in which the Group operates, we therefore concur with the

Directors’ view that it is in the interests of the Group and the Shareholders to diversify

its business and to actively pursue new business opportunities to regain the Group’s

growth momentum.


– 66 –

2. Investment Overview

On 8 June 2013, the Company and Elegant City entered into the Preliminary

Agreement. Following the Preliminary Agreement, the Company entered into the Amended

and Restated Preliminary Agreement dated 10 July 2013, which involved New Crescent

and Elegant City. The terms of the Amended and Restated Preliminary Agreement were

to supersede the terms of the Preliminary Agreement in its entirety and were also legally

binding, but did not declare to have all the terms of the Investment Agreement. On 23 August

2013, a wholly-owned subsidiary of the Company, SARL, entered into the Investment

Agreement with New Crescent, Firich, Elegant City and Oriental Regent which was to

supersede and replace the Amended and Restated Preliminary Agreement.

The following diagram illustrates the shareholding structure of Oriental Regent prior

to the Reorganization.

50%

0.01%99.99%

Elegant City

(BVI)Mr. Oleg Drozdov

Oriental Regent

(Hong Kong)

FGCE

(Russia)



License

As at the Latest Practicable Date, Oriental Regent, an investment holding company,

owns 100% of FGCE. Consequently, upon completion of the Reorganization, FGCE is to

become a wholly-owned subsidiary of Oriental Regent.


– 67 –

The following diagram shows the shareholding structure of Oriental Regent

immediately upon completion of the Reorganization.

100%

100%

Elegant City

(BVI)

Oriental Regent

(Hong Kong)

FGCE

(Russia)



License


New Crescent shall, on Completion, subscribe for, and Oriental Regent shall issue, the new

Oriental Regent Shares. The Investment Agreement provides that SARL, New Crescent,

Firich and Elegant City will have, upon Completion, indirectly invested in a gaming and

resort development project in Russia by having Oriental Regent Shares in proportion of 46%,

5%, 19% and 30% respectively as shown below.

46%19%30% 5%

100%



License

Elegant City

(BVI)

Firich

(Mauritius)

SARL

(BVI)

New Crescent

(BVI)

Oriental Regent

(Hong Kong)

FGCE

(Russia)


– 68 –

FGCE holds a gaming license awarded by the Administration of the Primorye Region

to conduct gaming activities in the IEZ established in the Primorye Region. The Primorye

Region is in the Far Eastern economic region of Russia and has the city of Vladivostok as its

administrative center. The gaming license held by FGCE has been granted for an indefinite

period which commenced on 22 April 2012. Upon Completion, Oriental Regent will hold

100% of FGCE and will be indirectly interested in 100% of the aforesaid gaming and resort

development in Russia.

As stated in the Board Letter, it is estimated that the total required investment for

the casino resort complex to be constructed on Lot 9 is approximately US$130 million (or

approximately RUB4,148.4 million or approximately HK$1,008.2 million).

The principal land lot, Lot 9 has a site area of approximately 90,455m2 on which

the casino resort complex is planned to be built with a total planned gross floor area of

approximately 32,699m2. The land Lot 8 is expected to be the utility zone for the mechanical,

electrical and plumbing infrastructure servicing Lot 9 and possibly other land lots within the

IEZ. It is expected that FGCE will develop a casino resort complex on Lot 9, which plans to

have approximately 119 hotel rooms, with approximately 800 slot machines, 25 VIP gaming

tables and 15 mass market baccarat tables and 25 mass market tables. The superstructure,

including foundations and shell (floors and roof) of the main casino and hotel building has

already been constructed.

Under the Investment Agreement, subsequent equity funding (excluding the equity

funding immediately after the Completion Date) will be required after Completion of

which SARL’s payable proportion is estimated to be approximately US$27.3 million (or

approximately RUB871.2 million or approximately HK$211.7 million). If the Group requires

any additional finance, or any portion thereof, the Investment Agreement entails that SARL,

New Crescent, Firich and Elegant City are to first seek external debt financing. Failing that,

equity or shareholders’ loans will be used for the subsequent funding.


– 69 –

(i) Overview of the IEZ

The following map shows the strategic location of the Primorye Region and the

IEZ and its proximity to the northern region of China, Korea and Japan.

RUSSIA Primorye Region

Source: Maps of World

The Primorye Region is in the Far Eastern economic region of Russia with the

city of Vladivostok as its administrative center.

ARTEM

Source: Integrated Entertainment Zone Assessment prepared by Gaming Market Advisors


– 70 –

OJSC “Nash Dom Primorye” (“NDP”), a wholly-owned government

corporation, was initially awarded the contract by the Government of Primorsky Krai

(“Primorye”), a region of the Russian Federation, to facilitate the development of an

Integrated Entertainment Zone (“IEZ”) located in Artem and within close proximity to

Vladivostok, Primorye’s capital and largest city. Subsequently, NDP has transferred,

amongst other things, all its rights and obligations in relation to the Lot 8 and Lot

9 Lease to OJSC Primorsky Krai Development Corporation, a joint stock company

wholly-owned by the Administration of the Primorye Region. Primorye is one of four

regions in Russia in which casino gaming development has been authorized based

on federal legislation passed on 1 January 2007 (law number 244-FZ or “244-FZ”).

Subsequent to the passage of 244-FZ, a site for Primorye’s IEZ was identified. The

IEZ’s location was identified by Vladimir Putin, the President of Russia, himself and

developed under the direction of Primorye regional government. 244-FZ restricts

casino development to parcels of land within the IEZ. A total of twenty-one parcels

of land make up the IEZ; however, not all are designated for casino development.

Gaming Market Advisors, one of the foremost gaming and hospitality research firms

in Asian gaming, and Galaviz & Company, a world recognized economics and strategy

consulting firm that advises private equity firms, hedge funds, governments and

Fortune 500 companies on economic development and government relations, were

retained by NDP to assist them in developing a Request for Concept process and to

successfully attract international operators who will bid on the available licenses.

FGCE holds a gaming license awarded by the Administration of the Primorye

Region to conduct gaming activities in the IEZ established in the Primorye Region.

The gaming licenses was awarded to FGCE on 6 October 2011 under which FGCE

has the right to conduct gaming activities in the IEZ for an indefinite period, which

commenced on 22 April 2012.

LOT 8LOT 9

Source: OJSC Nash Dom – Primorye


– 71 –

(ii) Merits of the IEZ

(a) Strong government support

According to the websi te , “Integrated Enter tainment Zone –

Vladivostok”, the IEZ is the priority project of the Primorsky Krai

Administration in tourism, leisure and entertainment spheres, and will take

a leading position in the tourism cluster of Primorye. The development plan

of the IEZ comprises the construction of hotels, guest villas, shopping and

exhibition centers, casinos, a water park, an amusement park, a yacht club, a

pier, restaurants, cafes, beaches and a golf course.

According to the report titled “Integrated Entertainment Zone

Assessment” prepared by Gaming Market Advisers (the “GMA Report”),

substantial investments in transportation and tourism infrastructure are

currently under way which include improvements in roadways and bridges,

new hotels, etc. The Russian federal government was expected to have invested

RUB584 billion (equivalent to approximately US$18.3 billion or approximately

HK$141.9 billion) into Vladivostok’s infrastructure, upgrades of buildings, and

construction of an international university. In addition, a development project

included the construction of an international passenger terminal, a control

tower, a cargo terminal and a hotel complex was completed in 2012.

(b) Strategic location and ease of access

Primorye is a federal subject of Russia with Vladivostok as its

administrative center. According to the GMA report, in recent years, there has

been a trend for Russian population towards immigration to specific urban

centers, most notably Vladivostok.

The IEZ is located in Artem, around 50 kilometres from Vladivostok.

Primorye is bordered by China and North Korea, and Vladivostok is the

region’s largest city and capital, and nearby the Vladivostok International

Airport is merely 20 kilometres from the IEZ.


– 72 –

According to the website of Vladivostok International Airport, the

Vladivostok International Airport has accommodated an average of around 1.5

million passengers annually over the past few years, and the new terminal has

a maximum annual capacity of 3.5 million. According to the GMA Report,

current international cities with direct airlift at the airport include Seoul,

Busan, Harbin, Beijing, Tokyo, Hong Kong, Ho Chi Ming City, Singapore and

Tashkent. Parts of China and North Korea lie within 600 kilometres of the IEZ,

roughly equivalent to an 1-hour flight, and other parts of China, South Korea

and Japan within 2-hour flight, and Beijing approximately a 2.5 hour flight.

Source: Integrated Entertainment Zone Assessment prepared by Gaming Market Advisors

The GMA Report stated that a lot of major projects to improve the area’s

infrastructure have been executed recently. With the new roadway infrastructure

in the area around the IEZ, the drive from Vladivostok International Airport to

the IEZ will be approximately 16 kilometres reducing the driving time between

15 to 20 minutes. For tourists who will take a coach from China to the IEZ, the

drive time once through immigration and in Russia is approximately 2.5 to 3.0

hours. Furthermore, the IEZ is also well connected by rail systems. Passengers

from the IEZ can board at nearby Artem and take a 2-hour train to Pogranichny,

a town in Russia that borders China, where they would then clear customs and

change to the Chinese rail.


– 73 –

Considering its strategic location, ease of access and variety of

transportation, we concur with the Director’s view that the IEZ represents an

attractive location geographically close to the target feeder markets, i.e. the

three Chinese provinces in Northern China.

(c) Favourable Taxation

With reference to Tax Code of the Russian Federation’s Article 369, the

rate of the gambling tax is a fixed amount based on the number of gambling

machines and tables. The rates per gambling machine and per gambling

table are RUB7,500 per month (equivalent to approximately US$235.0 or

HK$1,822.5) and RUB125,000 per month (equivalent to approximately

US$3,917.1 or HK$30,375.0), respectively. As disclosed in the Board Letter,

the casino resort plans to have approximately 800 slot machines, 25 VIP

gaming tables and 15 mass market baccarat tables and 25 mass market tables.

The total tax payable per month would therefore amount to approximately

RUB14.1 million (equivalent to approximately US$0.4 million or HK$3.4

million) This compares favorably with other gaming jurisdictions where gaming

tax are calculated based on a percentage of the gaming revenue, e.g. Macau

has a relatively high effective gaming tax rate of approximately 39% while

Singapore charges approximately 22% on mass market play and 12% on VIP

play. In addition to the attractive gaming tax rates, gaming income is exempted

from corporate tax in accordance with a legal opinion by CMS International

B.V.

The gambling tax payable is a fixed amount which we believe is minimal

compared to the potential gaming revenue generated by each machine/table

per month. The low tax rates included in the Russian legislation will allow

casino-resort operators, on a cost basis, to build facilities, market to customers,

pay commissions to junket operators, and institute reward programs that are

competitive with other existing and potentially emerging jurisdictions that

target gamers in the region.

(d) Other regulations

On January 1, 2007, federal legislation (Law number 244-FZ) took

effect. This legislation enables slot machines, table games, and sports betting

for people age 18 and over. There are no restrictions on hours of operations,

the number of gaming positions, wager or loss limits, or admittances (other

than age). For other regional competitors, such as Macau and Singapore, the

minimum admission age is 21. In addition, government regulations in Singapore

also require Singapore citizens and permanent residents to purchase a day pass

or to a yearly membership for access into the casino.


– 74 –

3. Principal terms of the Investment Agreement


New Crescent shall, following completion of the Reorganization (a condition precedent to

the Investment Agreement) and upon Completion, subscribe for 46,000 new Oriental Regent

Shares and 5,000 new Oriental Regent Shares respectively and Oriental Regent shall issue in

aggregate 51,000 new Oriental Regent Shares fully paid up and free from encumbrances and

together with all rights conferred by those new Oriental Regent Shares as at the date of their

issue. Neither SARL nor New Crescent will be obliged to complete their subscription of the

new Oriental Regent Shares unless their subscriptions of the new Oriental Regent Shares are

completed simultaneously. The new Oriental Regent Shares shall rank pari passu with the

Oriental Regent Shares in issue as at the date of relevant issue. Upon Completion, SARL,

New Crescent, Firich and Elegant City will be interested in 46%, 5%, 19% and 30% of the

enlarged issued share capital of Oriental Regent respectively.

(i) Consideration

(a) In consideration for the subscription and issue of 46,000 new

Oriental Regent Shares, SARL shall invest an amount equivalent

to RUB764,456,000 (subject to adjustment below) (equivalent to

approximately US$24.0 million or approximately HK$185.8 million)

payable in US$ to Oriental Regent upon Completion.

(b) In the event the indebtedness owed by FGCE to its two creditors as

referred to the Reorganisation is unable to be novated or extinguished

within 30 days of the date of the Investment Agreement (the “Adjustment

Event”), an amount shall be deducted from the investment payable by

SARL, which deduction shall be calculated in accordance with the

following formula:

N x 46/49

where N is the aggregate amount of the indebtedness owed by FGCE

to the aforesaid two parties which remains owing as at the 30th day

after the date of the Investment Agreement, and SARL shall waive the

completion of the novation and extinguishment in respect only of the

outstanding amount represented by N. This adjustment allows SARL to

make the appropriate consideration to the investment in accordance with

its pre-determined shareholding of 46% at cost.


– 75 –

(c) Similar to SARL, in consideration for the subscription and issue of 5,000

new Oriental Regent Shares, New Crescent shall invest a proportional

amount of consideration in accordance with its pre-determined

shareholding of 5%, which is equivalent to RUB83,093,000 (subject

to adjustment below) (equivalent to approximately US$2.6 million or

approximately HK$20.2 million) payable in US$ to Oriental Regent

upon Completion. Similarly, if there is an Adjustment Event, an amount

shall be deducted from the investment payable by New Crescent, which

deduction shall be calculated in accordance with the following formula:

N x 5/49

and New Crescent shall waive the completion of the novation and

extinguishment in respect only of the outstanding amount represented by

N.

The consideration for the Proposed Investment was mutually agreed

among SARL, New Crescent, Firich and Elegant City based on

commercial considerations, on an arm’s length basis. The purpose of the

formula in relation to the consideration for the Proposed Investment is to

ensure that SARL and New Crescent will invest in the Target Group at

cost.

As at 30 June 2013, the audited net asset value of FGCE was RUB683,574,000.

As stated in the property valuation report prepared by the Independent Valuer, there is

no commercial value in the property interest on Lot 9 because there are prohibitions

against subletting and/or assignment contained in Lot 9 and/or tenancy agreement or

the lack of substantial profit rent, and construction-in-progress works erected on Lot

9 cannot be freely transferrable in the open market with regards to the conditions in

the relevant investment contract and sublease agreement as per the Company’s Russian

legal adviser. Hence, no value has been accounted for the property interest in Lot 9

in the audited net asset value of FGCE. As no commercial value was attributed to the

property interest on Lot 9, the construction cost, which was the audited net asset value

of FGCE as at 30 June 2013, was taken into account as the basis of the consideration.

Upon completion of the Reorganization, which having taken into account the equity

capitalization of debts accounted to RUB127,751,000, the net asset value of FGCE

will be RUB814,312,000.


– 76 –

The following adjustments represent the net asset value of Oriental Regent upon

Reorganization:

RUB’000

FGCE Equity 683,574

Add: Retained Losses 2,987

686,561

Novation/capitalization of certain FGCE debts 127,751

Total investment amount by Oriental Regent Shareholders

(other than SARL and New Crescent), immediately upon

completion of the Reorganization 814,312

Total investment of the enlarged share capital of

Oriental Regent (= 814,312,000/49%) 1,661,861

Investment by SARL (=1,661,861,000*46%) 764,456

We note that the net asset value of FGCE was primarily accounted for the

total costs incurred by the existing shareholders of Oriental Regent, adjusted for the

novation and capitalisation of debts whilst it has not taken into account the value of

the Gaming License.

Based on the above, we are of the view that the consideration and the

adjustment thereof under the Investment Agreement are fair and reasonable since it

allows the Company to contribute new capital (instead of buying out any existing

shareholders) to the Proposed Investment on a pro rata basis in accordance with its

respective shareholding in Oriental Regent at cost, i.e. at zero premium to the NAV of

FGCE adjusting for the Reorganization whilst paying no consideration for the Gaming

License.


– 77 –

(ii) Key Operating and Management Provisions, Management and Gaming

Consultancy Contracts

The Investment Agreement includes, inter alia, the following terms which will

apply with effect from Completion:

(a) The boards of Oriental Regent and FGCE are to be made up of five

directors, appointed as follows:

(i) SARL shall be entitled to appoint two directors to each board;

(ii) Elegant City shall be entitled to appoint two directors to each

board; and

(iii) New Crescent shall be entitled to appoint one director to each

board.

(b) SARL shall nominate the CEO of FGCE and any replacement thereof.

The CEO shall establish an executive committee, with such composition

and terms of reference as the CEO shall deem appropriate from time to

time, to manage the business and operations of FGCE. The CEO shall

be responsible for the running of Target Group’s business and shall be

delegated with the power and authority to manage the business of the

Target Group. Elegant City is to nominate the deputy CEO of FGCE

and any replacement thereof. The Deputy CEO shall be responsible

for dealing with matters such as Russian legislation and compliance;

interaction with Russian authorities, tax inspections and supervisory

bodies.

(c) FGCE shall enter into a management contract with the Company or

an affiliate of the Company, for a fee of 3% of gross gaming revenue

generated by FGCE, to provide gaming management, operational and

consultancy services to FGCE.

(d) FGCE is to enter into a gaming consultancy contract with New Crescent,

or an affiliate of New Crescent, for a fee of 0.3% of gross gaming

revenue generated by FGCE, to provide gaming consultancy services to

FGCE.


– 78 –

We are of the view that the key management and management provisions are

fair and reasonable and are in the interest of the Company and its Shareholders, in

particular:

i) SARL has the right to appoint the CEO of FGCE who is responsible for

the overall management and operation of the business; and

ii) in addition to reaping the benefit of the economic returns of the business

as a shareholder of FGCE, the Company managed to negotiate for a

management fee based on the gross gaming revenue to be paid by FGCE.

Such fee can provide additional 3% of gross gaming revenue generated

by FGCE to the Company.

We also believe that the gaming consultancy fee payable to New Crescent is fair

and reasonable given the potential benefits that Melco is expected to bring to FGCE

based on their expertise and relationship with the VIP customers.

(iii) Other provisions of the Investment Agreement

Under the Investment Agreement, there are a number of terms which are

customary to investment agreements of this nature including, inter alia:

(a) right of first refusal to all Oriental Regent Shareholders in respect of new

development investment opportunities of real estate lots within the IEZ;

(b) right of first refusal to FGCE in respect of the right to operate and

manage all future casino projects to be developed or acquired by any

of the Oriental Regent Shareholders or any of their respective affiliates,

either alone or jointly, in the IEZ;

(c) decision of each of the board of Oriental Regent and FGCE will be by

simple majority resolution except for matters specified in the Investment

Agreement relating to minority protections and key investment and

business decisions with right of first refusal to all Oriental Regent

Shareholders in respect of new development investment opportunities of

real estate lots within the IEZ; and

(d) customary transfer restrictions and right of first refusal to all Oriental

Regent Shareholders in relation to transfers of Oriental Regent Shares.


– 79 –

4. Financing of the Proposed Investment

The estimated total investment for the casino resort complex to be constructed on

Lot 9 is approximately US$130 million. As per the audited management accounts of FGCE

as at 30 June 2013, the total construction cost incurred for the casino resort complex

was approximately RUB629.1 million (equivalent to approximately US$19.7 million or

approximately HK$152.9 million), excluding relevant value-added tax.

Based on information currently available, the estimated investment deemed to have

been funded by the parties under the Investment Agreement (i) upon completion of the

Reorganization; (ii) upon Completion; (iii) upon contribution of the subsequent funding

immediately after Completion pursuant to the Investment Agreement; and (iv) after

contribution of subsequent funding in (iii) (i.e. outstanding required investment assuming no

external financing is secured) are summarized below:

SARLNew

Crescent FirichElegant

City Total

(i) Upon completion of the Reorganization

– US$ equivalent (million) – – – 25.5 25.5

– RUB (million) – – – 814.3 814.3

– HK$ equivalent (million) – – – 197.9 197.9

(ii) Upon Completion

– US$ equivalent (million) 24.0 2.6 9.9 15.6 52.1

– RUB (million) 764.5 83.1 315.8 498.6 1,662.0


(iii) Immediately after Completion

– US$ (million) 32.5 3.5 13.4 21.2 70.6

– RUB equivalent (million) 1,037.1 111.7 427.6 676.5 2,252.9


(iv) Outstanding required investment

– US$ (million) 27.3 3.0 11.3 17.8 59.4

– RUB equivalent (million) 871.2 95.7 360.6 568.0 1,895.5


Total investment ((iii)+(iv))

– US$ (million) 59.8 6.5 24.7 39.0 130.0

– RUB equivalent (million) 1,908.3 207.4 788.2 1,244.5 4,148.4

– HK$ equivalent (million) 463.7 50.4 191.5 302.5 1,008.2

Note: The casino resort complex is expected to open in or around September 2014.


– 80 –

In relation to the remaining amount of the required investment after Completion and

subsequent funding pursuant to the Investment Agreement, estimated to be approximately

US$59.4 million (equivalent to approximately RUB1,895.5 million or approximately

HK$460.6 million) as set out in the table above, the Investment Agreement provides that

SARL, New Crescent, Firich and Elegant City will first seek external debt financing. If

external financing is obtained, any of SARL, New Crescent, Firich or Elegant City has

the right to substitute its own funds for all or part of the external financing, on the same

terms as offered by the external party. To the extent that external financing is unavailable

or insufficient, SARL, New Crescent, Firich and Elegant City will (subject to unanimous

approval as a “minority protection” matter) fund the shortfall, either in the form of equity

or shareholder’s loans, pro rata to their respective shareholdings in Oriental Regent. No

party is required to provide funding or guarantee unless the party concerned agrees to do

so. However, the Investment Agreement also includes provisions enabling Oriental Regent

Shareholders to provide another shareholder’s funding where the other Oriental Regent

Shareholder is unable to do so, thereby diluting the percentage shareholding of the non-

funding shareholder.

As set out in the Board Letter, the Company intends to fund the consideration for the

Proposed Investment, the subsequent equity funding obligation and other costs and expenses

in connection with the Investment Agreement and the Company’s participation in the Lot 9

Project either by issuance of new Shares or debt financing.

5. Reasons for the Proposed Investment

As mentioned under section headed “Background and Financial Information for the

Group” above, the Group had been experiencing a deterioration in its financial performance

as it was adversely affected by the uncertainties associated with global and local economies.

As disclosed in the AR 2012, the Company was actively pursuing new business opportunities

to retain the growth momentum of the Company.

We believe that with the expertise and experience of the Directors and Melco in the

gaming industry, the Proposed Investment is expected to allow the Group to realize its long

term business diversification strategy by entering into the Russian gaming market through an

investment with potentially high revenue inflow and return to its Shareholders.


– 81 –

The Group is expected to benefit from the Proposed Investment as Russia currently

offers a favorable tax environment for gaming business compared to other jurisdictions. In

addition, the IEZ is a unique place on the Pacific coast of Russia; it has become available

for tourists on the principles of attracting private Russian and foreign investment. It is also

expected the Proposed Investment will give the Company a first mover advantage as the

proposed casino resort will most likely be the first legal casino to start operating in the

Far Eastern Region of Russia since the ban of gambling in the country (except for the four

designated border zones) in 2009.

Having considered the favorable tax environment and the prospects of the casino

resort project, we concur with the Directors’ view that the Proposed Investment represents a

good opportunity for the Company to realize its long-term business diversification strategy

and is in the interests of the Company and its Shareholders as a whole.

6. Possible financial impact to the Group

(i) Earnings

Upon Completion, the 46% owned Oriental Regent will be accounted for as a

jointly controlled entity of the Company and its results will be equity accounted for in

the financial statement of the Group. The members of the Target Group recorded no

turnover and insignificant pre-opening profit for the six months ended 30 June 2013,

the Directors consider that impact of the Proposed Investment on the Group’s earnings

will be minimal immediately upon Completion. As set out in the Board Letter, it is

anticipated that the Proposed Investment will have a positive effect on the Group’s

earnings upon completion of casino resort project by the Target Group.

(ii) Assets and Liabilities

According to the interim results announcement of the Company for the six

months ended 30 June 2013, the audited consolidated total assets and total liabilities

of the Group were approximately HK$117.2 million and HK$6.4 million respectively.

The audited consolidated net asset value attributable to the Shareholders as at 30 June

2013 was approximately HK$110.8 million. As set out in Appendix IV to this Circular,

assuming Completion had taken place on 30 June 2013, the unaudited consolidated

pro forma total assets and total liabilities of the Enlarged Group were approximately

HK$117.2 million and HK$6.4 million respectively. The unaudited pro forma net asset

value of the Enlarged Group was approximately HK$110.8 million, which remained at

par of the unaudited consolidated net asset value attributable to the Shareholders as at

30 June 2013.


– 82 –

RECOMMENDATIONS

As mentioned above, Completion is conditional upon, inter alia, the completion of the

Reorganization and the approval of the Independent Shareholders at the SGM.

Having considered the above principal factors and reasons, in particular that:

• the Company can take this opportunity to explore a new revenue source and diversify

into a potentially high growth business with the expertise and experience of the

Directors and Melco in the gaming industry whilst capitalizing on the first mover

advantage to develop the gaming business in Russia;

• the IEZ is expected to take a leading position in the tourism cluster of Primorye in

Russia with its strong government support, favorable taxation and its strategic location

in close proximity to the target feeder markets for the casino project;

• the Company shall invest, on a pro-rata basis in proportion of its shareholding in

FGCE, in a gaming business in the Proposed Investment at cost without taking into

account the value of the Gaming License;

• the Company will have the right to appoint the CEO of FGCE on overall management

and operation of the Target Group;

• apart from benefiting from the financial returns derived from the Proposed Investment,

the Company will also receive an additional management fee based on the gross

gaming revenue of FGCE; and

• the Company and New Crescent shall invest in the casino resort at cost on a pro-rata

basis in proportion of their respective shareholdings in Oriental Regent and the terms

offered to New Crescent are no better than those offered to the Company,

we are of the view that the terms, including the connected aspects, of the Investment Agreement

are on normal commercial terms, fair and reasonable and in the interests of the Company and the

Shareholders as a whole. Notwithstanding that the Proposed Investment is not in the ordinary

and usual course of business of the Company, as stated above, the Group had been experiencing


– 83 –

a deterioration in its financial performance and the Proposed Investment is expected to allow the

Group to realize its long term business diversification strategy. Therefore, we are of the view that

the Proposed Investment is in the interests of the Company and the Shareholders as a whole.

We therefore recommend the Independent Board Committee to advise the Independent

Shareholders to vote in favour of the resolution in relation to the Proposed Investment at the SGM.

We also recommend the Independent Shareholders to vote in favour of the resolution in relation to

the Proposed Investment.

Yours faithfully,


Odysseus Capital Asia Limited

Joseph Chu

Managing Director

APPENDIX I FINANCIAL INFORMATION OF THE GROUP

I – 1

1. SUMMARY OF FINANCIAL INFORMATION

The following is a summary of the consolidated financial information of the Company for the

six months ended 30 June 2012 and 2013 and the three years ended 31 December 2010, 2011 and

2012, as extracted from the interim report of the Company for the six months ended 30 June 2013

and the annual reports of the Company for the two years ended 31 December 2011 and 2012.

For the six months ended 30 June

For the year ended 31 December

2013 2012 2012 2011 2010HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Unaudited Unaudited Audited Audited Audited

CONTINUING OPERATIONSTurnover 1,469 6,952 9,845 72,333 89,034

Cost of sales (896) (5,005) (6,877) (56,413) (70,703)

Gross profit 573 1,947 2,968 15,920 18,331

Other revenues – – – 171 –

Operating expenses (4,584) (4,849) (8,976) (12,772) (17,020)

Operating (loss)/profit (4,011) (2,902) (6,008) 3,319 1,311

Finance cost – – – – 80

(Loss)/profit before income tax (4,011) (2,902) (6,008) 3,319 1,391

Income tax expense – – – (1,012) –

(Loss)/profit for the period/year

from continuing operations (4,011) (2,902) (6,008) 2,307 1,391

DISCONTINUED OPERATIONS(Loss)/profit for the period/year

from discontinued operations – – – (332) 9,955

(LOSS)/PROFIT AND TOTAL COMPREHENSIVE (EXPENSE)/INCOME FOR THE PERIOD/YEAR, ATTRIBUTABLE TO SHAREHOLDERS (4,011) (2,902) (6,008) 1,975 11,346

Basic and diluted (loss)/earnings per

share (HK cents)

– continuing operations (0.67) (0.52) (2.53) 0.97 0.60

– discontinued operations – – – (0.14) 4.30

(0.67) (0.52) (2.53) 0.83 4.90

Dividend per Share attributable to

the Shareholders Nil Nil Nil Nil HK82.79 cents3

Dividends Nil Nil Nil Nil 196,990


I – 2

ASSETS, LIABILITIES AND

SHAREHOLDERS’ FUNDS

Total assets 117,192 41,132 37,360 43,721 328,525

Total liabilities 6,396 9,322 8,032 10,241 103,638

Shareholders’ funds 110,796 31,810 29,328 33,480 224,887

Notes:

1. No qualified opinion in respect of the audited financial statements of the Company for the three years ended

31 December 2010, 2011 and 2012 has been issued by the auditors of the Company.

2. No exceptional items because of their size, nature or incidences were recognised in the above accounts for

the six months ended 30 June 2012 and 2013 and the three years ended 31 December 2010, 2011 and 2012.

3. The Board did not recommend the payment of any final dividend for the year ended 31 December 2010 but

recommended the declaration of a special dividend of not less than HK$0.7437 per share of the Company.

This proposed special dividend was approved by the shareholders at a special general meeting of the

Company on 17 February 2011. On 22 February 2011, the Board resolved that the actual special dividend

be HK$0.8279 per share of the Company to be distributed to the Shareholders whose names appeared on

the registrar of members of the Company on 16 February 2011. The special dividend which amounted to

HK$196,990,000 was paid on 25 February 2011.

As at 30 June As at 31 December

2013 2012 2012 2011 2010

HK$’000 HK$’000 HK$’000 HK$’000 HK$’000

Unaudited Unaudited Audited Audited Audited


I – 3

2. FINANCIAL INFORMATION OF THE COMPANY FOR THE SIX MONTHS ENDED

30 JUNE 2013 AND THE THREE YEARS ENDED 31 DECEMBER 2010, 2011 AND

2012

The published consolidated financial statements of the Company for the six months ended

30 June 2013 and the three years ended 31 December 2010, 2011 and 2012 were set out in pages

12 to 24 of the interim report of the Company for the six months ended 30 June 2013; and pages

32 to 75 of the annual report of the Company for the year ended 31 December 2012, pages 33 to 87

of the annual report of the Company for the year ended 31 December 2011 and pages 39 to 102 of

the annual report of the Company for the year ended 31 December 2010 respectively, which can be

accessed by the direct hyperlinks below:

(i) The published consolidated financial statements of the Company for the six months

ended 30 June 2013:

http://www.hkexnews.hk/listedco/listconews/SEHK/2013/0830/LTN20130830983.pdf

(ii) The published consolidated financial statements of the Company for the year ended 31

December 2012:


(iii) The published consolidated financial statements of the Company for the year ended 31

December 2011:


(iv) The published consolidated financial statements of the Company for the year ended 31

December 2010:



I – 4

3. WORKING CAPITAL

Taking into account the expected completion of the Proposed Investment (including the

fulfillment of the conditions precedent to the Investment Agreement regarding SARL or the

Company having successfully raised sufficient funds (in equity and/or debt and it is expected

to be approximately HK$150,000,000) on terms and conditions satisfactory to them to enable

SARL to satisfy the consideration for the subscription of new Oriental Regent Shares pursuant

to the Investment Agreement) and subsequent equity and/or debt fund raising (it is expected to

be approximately HK$315,000,000) that the Group will undertake as and when it is required in

the next twelve months and the financial resources available to the Group, including the existing

cash and cash equivalents, the Directors are of the opinion that the Enlarged Group has sufficient

working capital for its present requirements for at least the next twelve months from the date of this

circular.

4. INDEBTEDNESS

At the close of business on 31 August 2013, being the latest practicable date prior to the

printing of this circular, apart from intra-group liabilities, the Enlarged Group did not have any

loan capital issued and outstanding or agreed to be issued, bank overdrafts, loans or other similar

indebtedness, liabilities under acceptances or acceptance credits, debentures, mortgages, charges,

hire purchases commitments, guarantees or other material contingent liabilities.

5. MATERIAL ADVERSE CHANGE

As at the Latest Practicable Date, there had been no material adverse change in the financial

or trading position or outlook of the Group since 31 December 2012 (being the date to which the

latest published audited consolidated financial statements of the Company were made up).

APPENDIX IIA ACCOUNTANTS’ REPORT ON ORIENTAL REGENT

IIA – 1

The following is the text of the accountants’ report on Oriental Regent prepared for the

purpose of incorporation in this circular, received from the reporting accountants, Deloitte Touche

Tohmatsu, Certified Public Accountants, Hong Kong.

30 September 2013

The Directors

Summit Ascent Holdings Limited

Dear Sirs,

We set out below our report on the financial information (the “Financial Information”)

regarding Oriental Regent Limited (the “Company”) for the period from 12 August 2010 (date

of incorporation) to 30 June 2011 and each of the two years ended 30 June 2013 (the “Relevant

Periods”) for inclusion in the circular of Summit Ascent Holdings Limited (“Summit Ascent”) dated

30 September 2013 in connection with the proposed subscription of 46% of the enlarged issued

share capital of the Company (the “Circular”).

The Company, which acts as an investment holding company, was incorporated with limited

liability in Hong Kong on 12 August 2010. The financial year end date of the Company is 30 June.

The particulars of the Company’s jointly controlled entity are as follows:

Name

Place and date of

incorporation/

operation

Class

shares held

Percentage of

interest in ownership

Principal

activities

Date of

2011 2012 2013 Report

First Gambling Company of

the East LLC (“FGCE”)

Russian Federation

24 September 2010

Chartered

capital

– – 50% 50% Development of hotel

and gaming business

in the Integrated

Entertainment Zone

(“IEZ”)


IIA – 2

The statutory financial statements of the Company for the Relevant Periods prepared in

accordance with Hong Kong Financial Reporting Standards (“HKFRSs”) issued by the Hong Kong

Institute of Certified Public Accountants (the “HKICPA”) (the “Underlying Financial Statements”)

were audited by Richard S.K. Chan & Co. in accordance with Hong Kong Standards on Auditing

issued by the HKICPA.

The Financial Information of the Company for the Relevant Periods as set out in this report

has been prepared from the Underlying Financial Statements, after making such adjustments as

we consider appropriate for the purpose of preparing our report for inclusion in the Circular. We

have examined the Underlying Financial Statements and performed such additional procedures

as necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting

Accountant” as recommended by the HKICPA.

The Underlying Financial Statements are the responsibility of the sole director of the

Company who approved their issue. The directors of Summit Ascent are responsible for the contents

of the Circular in which this report is included. It is our responsibility to compile the Financial

Information set out in this report from the Underlying Financial Statements, to form an independent

opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair

view of the state of affairs of the Company as at 30 June 2011, 2012 and 2013 and of its results and

cash flows for the Relevant Periods.

EMPHASIS OF MATTER

Without qualifying our opinion, we draw attention to note 2 to the Financial Information,

which indicates that the Company had net current liabilities of HK$69,007, HK$136,965 and

HK$265,965 as at 30 June 2011, 2012 and 2013, respectively, and incurred a loss of HK$79,007 for

the period from the date of incorporation to 30 June 2011, a loss of HK$67,958 for the year ended

30 June 2012, and a loss of HK$4,688,150 for the year ended 30 June 2013. As further discussed in

note 2 to the Financial Information, the Company has entered into an investment agreement dated

23 August 2013 (the “Investment Agreement”) with Summit Ascent Russia Limited, a wholly-

owned subsidiary of Summit Ascent, New Crescent Investments Limited (“New Crescent”), Firich

Investment Limited and Elegant City (hereinafter collectively referred to as the “Shareholder

Parties”), pursuant to which the Company would be able to obtain financing for the Company’s

ongoing operations and any funding shortfall due would be funded by the Shareholder Parties to the

extent they have agreed, or may in the future agree, to do so, either in the form of equity or ordinary

shareholder convertible loan. These conditions, along with other matters as set forth in note 2 to the

Financial Information, indicate the existence of a material uncertainty which may cast significant

doubt about the Company’s ability to continue as a going concern. The Financial Information does

not include any adjustments that might result from the inability of the Company to operate as a

going concern.


IIA – 3

A. FINANCIAL INFORMATION

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Period from

12.8.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

NOTES HK$ HK$ HK$

Administrative expenses (78,986) (67,899) (128,957)

Share of profit of jointly

controlled entity 11 – – 9,056

Imputed interest on loan

from a shareholder – – (4,568,206)

Exchange loss, net (21) (59) (43)

Loss for the period/year 7 (79,007) (67,958) (4,688,150)

Other comprehensive expense:

Item that will not be

subsequently reclassified to

profit or loss:

Exchange differences arising

on translation to presentation

currency – – (823,881)

Total comprehensive expense

for the period/year (79,007) (67,958) (5,512,031)


IIA – 4

STATEMENTS OF FINANCIAL POSITION

At 30 June

2011 2012 2013

NOTES HK$ HK$ HK$

NON-CURRENT ASSET

Interest in jointly controlled entity 11 – – 70,947,814

CURRENT ASSETS

Amounts due from shareholders 12 10,000 10,000 10,000

Bank balances 13 6,591 3,795 8,755

16,591 13,795 18,755

CURRENT LIABILITIES

Accruals 20,000 40,000 110,000

Amount due to the sole director 14 65,598 110,760 174,720

85,598 150,760 284,720

NET CURRENT LIABILITIES (69,007) (136,965) (265,965)

TOTAL ASSETS LESS

CURRENT LIABILITIES (69,007) (136,965) 70,681,849

NON-CURRENT LIABILITY

Loan from a shareholder 15 – – 43,096,698

NET (LIABILITIES) ASSETS (69,007) (136,965) 27,585,151

CAPITAL AND RESERVES

Share capital 16 10,000 10,000 10,000

Reserves – – 32,410,266

Accumulated losses (79,007) (146,965) (4,835,115)

(DEFICIENCY) EQUITY

ATTRIBUTABLE TO OWNERS

OF THE COMPANY (69,007) (136,965) 27,585,151


IIA – 5

STATEMENTS OF CHANGES IN EQUITY

Share

capital

Capital

reserve

Foreign

currency

translation

reserve

Accumulated

losses Total

HK$ HK$ HK$ HK$ HK$

(Note)

Issue of shares at date of

incorporation 10,000 – – – 10,000

Loss and total comprehensive

expense for the period – – – (79,007) (79,007)

At 30 June 2011 10,000 – – (79,007) (69,007)


expense for the period – – – (67,958) (67,958)

At 30 June 2012 10,000 – – (146,965) (136,965)

Loss for the year – – – (4,688,150) (4,688,150)

Exchange differences arising

on translation to presentation

currency – – (823,881) – (823,881)

Total comprehensive expense – – (823,881) (4,688,150) (5,512,031)

Deemed capital contribution

from a shareholder – 33,234,147 – – 33,234,147

At 30 June 2013 10,000 33,234,147 (823,881) (4,835,115) 27,585,151

Note: Capital reserve represents deemed contribution from a shareholder of the Company as a result of the

provision of non-interest bearing loan (Note 15) .


IIA – 6

STATEMENTS OF CASH FLOWS

Period from

12.8.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

HK$ HK$ HK$

OPERATING ACTIVITIES

Loss for the period/year (79,007) (67,958) (4,688,150)

Adjustments for:

Interest expense – – 4,568,206

Share of profit of

jointly controlled entity – – (9,056)

Operating cash flows before movements

in working capital (79,007) (67,958) (129,000)

Increase in accruals 20,000 20,000 70,000

NET CASH USED IN OPERATING

ACTIVITIES (59,007) (47,958) (59,000)

CASH FROM FINANCING ACTIVITY

Advance from the sole director 65,598 45,162 63,960

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS 6,591 (2,796) 4,960

CASH AND CASH EQUIVALENTS AT

BEGINNING OF

THE PERIOD/YEAR – 6,591 3,795

CASH AND CASH EQUIVALENTS

AT END OF THE PERIOD/YEAR,

represented by bank balances 6,591 3,795 8,755


IIA – 7

NOTES TO THE FINANCIAL INFORMATION

1. General

The Company was incorporated with limited liability in Hong Kong on 12 August

2010. The address of its registered office of business is Flat H, 11/F, King Palace Plaza, 55

King Yip Street, Kwun Tong, Kowloon.

As of 30 June 2011 and 2012, the Company was owned as to 50%, 25% and 25% by

Benitez Marketing Limited (“Benitez Marketing”), Elegant City Group Limited (“Elegant

City”) and Diamond Fortune Holdings Limited (“Diamond Fortune”), respectively. On

30 July 2012, the 50% equity interest in the Company owned by Benitez Marketing was

separately acquired by Elegant City as to 25% and the remaining 25% by Diamond Fortune.

As of 30 June 2013, Elegant City, a company incorporated in the British Virgin Islands (the

“BVI”), controls 50% of the ordinary shares and voting of the Company. Mr. Oleg Drozdov,

a citizen of the Russian Federation, ultimately owns Elegant City. Diamond Fortune,

a company incorporated in the BVI, controls the other 50% of the ordinary shares and

voting of the Company. Mr. Aleksey Simanchuk, a citizen of the Russian Federation, has a

controlling interest in Diamond Fortune.

On 5 August 2013, Elegant City acquired 4,999 shares of the Company (representing

49.99% equity interest) from Diamond Fortune. On 12 August 2013, Mr. Oleg Drozdov

acquired the remaining one share of the Company (representing 0.01% equity interest)

owned by Diamond Fortune. As of the date of this report, the Company is owned 99.99% by

Elegant City and 0.01% by Mr. Oleg Drozdov.

The principal activity of the Company is investment holding. The functional currency

of the Company is Russian Roubles (“RUB”). For the convenience of the Financial

Information users, the Financial Information is presented in Hong Kong Dollars (“HK$”).


IIA – 8

2. Basis of preparation of financial information

As at 30 June 2011, 2012 and 2013, the Company had net current liabilities of

HK$69,007, HK$136,965 and HK$265,965, respectively, and incurred a loss of HK$79,007

for the period from the date of incorporation to 30 June 2011, a loss of HK$67,958 for the

year ended 30 June 2012, and a loss of HK$4,688,150 for the year ended 30 June 2013. The

Company’s major asset is its interest in a jointly controlled entity as set out in note 11, which

is in the development stage. The Financial Information has been prepared on a going concern

basis because the Company has entered into the Investment Agreement with the Shareholder

Parties, pursuant to which the Company will, subject to the fulfilment of certain conditions

precedent, receive amounts equivalent to RUB764,456,000 (equivalent to approximately

HK$177,812,000) and RUB83,093,000 (equivalent to approximately HK$19,327,000) in

relation to the subscription of 46,000 and 5,000 new shares of the Company by Summit

Ascent and New Crescent, respectively.

In addition, as part of the financial restructuring procedures under the Investment

Agreement, a loan due to Elegant City with a principal value of approximately

RUB300,050,000 (equivalent to approximately HK$73,362,000) as at 30 June 2013 and

together with the balances novated from FGCE amounting to RUB127,751,000 (equivalent

to approximately HK$29,726,000) as at 30 June 2013, were novated to Elegant City which

were then capitalised and extinguished in consideration for the issuance of new shares in

the Company to Elegant City. Further, the Shareholder Parties have agreed that if external

financing for the Company’s ongoing operations is unavailable or inadequate, the funding

shortfall due by the Company shall be funded by the Shareholder Parties to the extent they

have agreed, or may in the future agree, to fund, either in the form of equity or ordinary

shareholder convertible loan.

The sole director of the Company considers that, following the completion of the

Investment Agreement which is expected to be in October 2013, the Company will be able to

meet in full its financial obligations as and when they fall due for a period of at least the next

twelve months from 30 June 2013.

3. Application of new and revised Hong Kong Financial Reporting Standards

(“HKFRSs”)

For the purpose of preparing and presenting the Financial Information for the Relevant

Periods, the Company has consistently adopted the HKFRSs, Hong Kong Accounting

Standards (“HKAS”), amendments and interpretation issued by HKICPA that are effective

throughout the Relevant Periods.


IIA – 9

The Company has not early applied the following new and revised HKFRSs that have

been issued but are not yet effective during the Relevant Periods.

Amendments to HKFRSs Annual Improvements to HKFRSs 2009 – 2011

Cycle1

Amendments to HKFRS 1 Government Loans1

Amendments to HKFRS 7 Disclosures – Offsetting Financial Assets and

Financial Liabilities1

Amendments to HKFRS 9 and

HKFRS 7

Mandatory Effective Date of HKFRS 9 and

Transition Disclosures3

Amendments to HKFRS 10,

HKFRS 11 and HKFRS 12

Consolidated Financial Statements, Joint

Arrangements and Disclosure of Interests in Other

Entities: Transition Guidance1

Amendments to HKFRS 10,

HKFRS 12 and HKAS 27

Investment Entities2

HKFRS 9 Financial Instruments3

HKFRS 10 Consolidated Financial Statements1

HKFRS 11 Joint Arrangements1

HKFRS 12 Disclosure of Interests in Other Entities1

HKFRS 13 Fair Value Measurement1

HKAS 19 (as revised in 2011) Employee Benefits1

HKAS 27 (as revised in 2011) Separate Financial Statements1

HKAS 28 (as revised in 2011) Investments in Associates and Joint Ventures1

Amendments to HKAS 32 Offsetting Financial Assets and Financial Liabilities2

Amendments to HKAS 36 Recoverable Amount Disclosures for Non-Financial

Assets2

Amendments to HKAS 39 Novation of Derivatives and Continuation of Hedge

Accounting2

HK(IFRIC) – Int 20 Stripping Costs in the Production Phase of a Surface

Mine1

HK(IFRIC) – Int 21 Levies2

1 Effective for annual periods beginning on or after 1 January 2013.




IIA – 10

New and revised standards on consolidation, joint arrangements, associates and

disclosures

In June 2011, a package of five standards on consolidation, joint arrangements,

associates and disclosures was issued, including HKFRS 10, HKFRS 11, HKFRS 12,

HKAS 27 (as revised in 2011) and HKAS 28 (as revised in 2011).

Key requirements of standards relevant to the Company are described below.

HKFRS 10 replaces the parts of HKAS 27 Consolidated and Separate Financial

Statements that deal with consolidated financial statements. HK(SIC) – Int 12

Consolidation – Special Purpose Entities will be withdrawn upon effective date of

HKFRS 10. Under HKFRS 10, there is only one basis for consolidation, that is,

control. In addition, HKFRS 10 includes a new definition of control that contains three

elements: (a) power over an investee, (b) exposure, or rights, to variable returns from

its involvement with the investee, and (c) the ability to use its power over the investee

to affect the amount of the investor’s returns. Extensive guidance has been added in

HKFRS 10 to deal with complex scenarios.

HKFRS 11 replaces HKAS 31 Interests in Joint Ventures. HKFRS 11 deals

with how a joint arrangement of which two or more parties have joint control

should be classified. HK (SIC) – Int 13 Jointly Controlled Entities – Non-monetary

Contributions by Venturers will be withdrawn upon the effective date of HKFRS

11. Under HKFRS 11, joint arrangements are classified as joint operations or joint

ventures, depending on the rights and obligations of the parties to the arrangements.

In contrast, under HKAS 31, there are three types of joint arrangements: jointly

controlled entities, jointly controlled assets and jointly controlled operations. In

addition, joint ventures under HKFRS 11 are required to be accounted for using

the equity method of accounting, whereas jointly controlled entities under HKAS

31 can be accounted for using the equity method of accounting or proportionate

consolidation.

HKFRS 12 is a disclosure standard and is applicable to entities that have

interests in subsidiaries, joint arrangements, associates and/or unconsolidated

structured entities. In general, the disclosure requirements in HKFRS 12 are more

extensive than those in the current standards.


IIA – 11

In July 2012, the amendments to HKFRS 10, HKFRS 11 and HKFRS 12 were

issued to clarify certain transitional guidance on the application of these five HKFRSs

for the first time.

These five standards, together with the amendments relating to the transitional

guidance, will be adopted in the Company’s financial statements for the annual period

beginning on 1 July 2013.

The sole director is assessing the impact of the application of these new and

revised HKFRSs and hence have not yet quantified the extent of the impact on the

results and the financial position of the Company.

4. Significant accounting policies

The Financial Information has been prepared in accordance with HKFRSs issued by

the HKICPA. In addition, the Financial Information includes applicable disclosures required

by the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong

Limited and the Hong Kong Companies Ordinance.

The Financial Information has been prepared on the historical cost basis. Historical

cost is generally based on the fair value of the consideration given in exchange for goods and

services.

The principal accounting policies are set out below.

Jointly controlled entity

Joint venture arrangements that involve the establishment of a separate entity in

which venturers have joint control over the economic activity of the entity are referred

to as jointly controlled entities.

The results and assets and liabilities of jointly controlled entities are

incorporated in the Financial Information using the equity method of accounting.

Under the equity method, investments in jointly controlled entities are initially

recognised in the statement of financial position at cost and adjusted thereafter to

recognise the Company’s share of the profit or loss and other comprehensive income

of the jointly controlled entities.


IIA – 12

When the Company’s share of losses of a jointly controlled entity equals or

exceeds its interest in that jointly controlled entity (which includes any long-term

interests that, in substance, form part of the Company’s net investment in the jointly

controlled entity), the Company discontinues recognising its share of further losses.

Additional losses are recognised only to the extent that the Company has incurred

legal or constructive obligations or made payments on behalf of that jointly controlled

entity.

The requirements of HKAS 39 Financial Instruments: Recognition and

Measurement are applied to determine whether it is necessary to recognise any

impairment loss with respect to the Company’s investment in a jointly controlled

entity. When necessary, the entire carrying amount of the investment (including

goodwill) is tested for impairment in accordance with HKAS 36 Impairment of Assets

as a single asset by comparing its recoverable amount (higher of value in use and fair

value less costs to sell) with its carrying amount. Any impairment loss recognised

forms part of the carrying amount of the investment. Any reversal of that impairment

loss is recognised in accordance with HKAS 36 to the extent that the recoverable

amount of the investment subsequently increases.

Upon disposal of a jointly controlled entity that results in the Company

losing joint control over that jointly controlled entity, any retained investment is

measured at fair value at that date and the fair value is regarded as its fair value on

initial recognition as a financial asset in accordance with HKAS 39. The difference

between the previous carrying amount of the jointly controlled entity attributable to

the retained interest and its fair value is included in the determination of the gain or

loss on disposal of the jointly controlled entity. In addition, the Company accounts

for all amounts previously recognised in other comprehensive income in relation to

that jointly controlled entity on the same basis as would be required if that jointly

controlled entity had directly disposed of the related assets or liabilities. Therefore,

if a gain or loss previously recognised in other comprehensive income by that jointly

controlled entity would be reclassified to profit or loss on the disposal of the related

assets or liabilities, the Company reclassifies the gain or loss from equity to profit

or loss (as a reclassification adjustment) when it loses joint control over that jointly

controlled entity.

When the Company transacts with its jointly controlled entity, profits and losses

resulting from the transactions with the jointly controlled entity are recognised in the

Financial Information only to the extent of interests in the jointly controlled entity that

are not related to the Company.


IIA – 13

Foreign currencies

In preparing the Financial Information, transactions in currencies other than

the entity’s functional currency (foreign currencies) are recognised at the rates of

exchange prevailing at the dates of the transactions. At the end of each reporting

period, monetary items denominated in foreign currencies are retranslated at the rates

prevailing at that date. Non-monetary items that are measured in terms of historical

cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the

retranslation of monetary items, are recognised in profit or loss in the period in which

they arise.

Taxation

Income tax expense represents the sum of the tax currently payable and

deferred tax.

The tax currently payable is based on taxable profit for the period/year.

Taxable profit differs from the amount in the statement of profit or loss and other

comprehensive income because it excludes items of income or expense that are taxable

or deductible in other years and in further excludes items that are never taxable or

deductible. The Company’s liability for current tax is calculated using tax rates that

have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying

amounts of assets and liabilities in the Financial Information and the corresponding

tax base used in the computation of taxable profit. Deferred tax liabilities are

generally recognised for all taxable temporary differences. Deferred tax assets are

generally recognised for all deductible temporary difference to the extent that it

is probable that taxable profits will be available against which those deductible

temporary differences can be utilised. Such deferred tax assets and liabilities are

not recognised if the temporary difference arises from goodwill or from the initial

recognition (other than in a business combination) of assets and liabilities in a

transaction that affects neither the taxable profit nor the accounting profit.


IIA – 14

Deferred tax liabilities are recognised for taxable temporary differences

associated with interest in jointly controlled entity, except where the Company is able

to control the reversal of the temporary difference and it is probable that the temporary

difference will not reverse in the foreseeable future. Deferred tax assets arising from

deductible temporary differences associated with such interest are only recognised to

the extent that it is probable that there will be sufficient taxable profits against which

to utilise the benefits of the temporary differences and they are expected to reverse in

the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of the

reporting period and reduced to the extent that it is no longer probable that sufficient

taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected

to apply in the period in which the liability is settled or the asset is realised, based on

tax rate (and tax laws) that have been enacted or substantively enacted by the end of

the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax

consequences that would follow from the manner in which the Company expects, at

the end of the reporting period, to recover or settle the carrying amount of its assets

and liabilities. Current and deferred tax is recognised in profit or loss.

Financial instruments

Financial assets and financial liabilities are recognised in the statement of

financial position when the Company becomes a party to the contractual provisions of

the instrument.

Financial assets and financial liabilities are initially measured at fair value.

Transaction costs that are directly attributable to the acquisition or issue of financial

assets and financial liabilities are added to or deducted from the fair value of the

financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

The Company’s financial assets are classified as loans and receivables.

The classification depends on the nature and purpose of the financial assets and is

determined at the time of initial recognition.


IIA – 15

Effective interest method

The effective interest method is a method of calculating the amortised cost

of a debt instrument and of allocating interest income over the relevant period. The

effective interest rate is the rate that exactly discounts estimated future cash receipts

(including all fees paid or received that form an integral part of the effective interest

rate, transaction costs and other premiums or discounts) through the expected life of

the debt instrument, or, where appropriate, a shorter period, to the net carrying amount

on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or

determinable payments that are not quoted in an active market. Loans and receivables

(including amounts due from shareholders and bank balances) are measured at

amortised cost using the effective interest method, less any impairment losses (see

accounting policy on impairment loss on financial assets below).

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each

reporting period. Financial assets are considered to be impaired where there is

objective evidence that, as a result of one or more events that occurred after the initial

recognition of the financial asset, the estimated future cash flows of the financial

assets have been affected.

Objective evidence of impairment of financial assets could include:

• significant financial difficulty of the issuer or counterparty; or

• breach of contract, such as default or delinquency in interest or principal

payments; or

• it becoming probable that the borrower will enter bankruptcy or financial

re-organisation.


IIA – 16

For financial assets carried at amortised cost, the amount of the impairment loss

recognised is the difference between the asset’s carrying amount and the present value

of the estimated future cash flows, discounted at the financial asset’s original effective

interest rate.

The carrying amount of the financial asset is reduced by the impairment loss

directly for all financial assets.

For financial assets measured at amortised cost, if, in a subsequent period, the

amount of impairment loss decreases and the decrease can be related objectively to an

event occurring after the impairment loss was recognised, the previously recognised

impairment loss is reversed through profit or loss to the extent that the carrying

amount of the asset at the date the impairment is reversed does not exceed what the

amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity instruments

Debt and equity instruments issued by the Company are classified either as

financial liabilities or as equity in accordance with the substance of the contractual

arrangements and the definitions of a financial liability and an equity instrument.


The effective interest method is a method of calculating the amortised cost of

a financial liability and of allocating interest expense over the relevant period. The

effective interest rate is the rate that exactly discounts estimated future cash payments

(including all fees and points paid or received that form an integral part of the

effective interest rate, transaction costs and other premiums or discounts) through the

expected life of the financial liability, or, where appropriate, a shorter period, to the

net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the

assets of the Company after deducting all of its liabilities. Equity instruments issued

by the Company are recognised at the proceeds received.


IIA – 17

Financial liabilities

The Company’s financial liabilities are generally classified as other financial

liabilities, including amount due to the sole director and loan from a shareholder, and

are subsequently measured at amortised cost, using the effective interest method.

Derecognition

The Company derecognises a financial asset when the contractual rights to

the cash flows from the asset expire, or when it transfers the financial asset and

substantially all the risks and rewards of ownership of the asset to another party. If

the Company neither transfers nor retains substantially all the risks and rewards of

ownership and continues to control the transferred asset, the Company continues

to recognise the asset to the extent of its continuing involvement and recognise an

associated liability. If the Company retains substantially all the risks and rewards

of ownership of a transferred financial asset, the Company continues to recognise

the financial asset and also recognises a collateralised borrowing for the proceeds

received. On derecognition of a financial asset in its entirety, the difference between

the asset’s carrying amount and the sum of the consideration received and receivable

is recognised in profit or loss.

The Company derecognises financial liabilities when, and only when, the

Company’s obligations are discharged, cancelled or expire. The difference between

the carrying amount of the financial liability derecognised and the consideration paid

and payable is recognised in profit or loss.

5. Segment information

The sole director of the Company, being the chief operating decision maker (the

“CODM”), assesses the performance and allocate the resources of the Company as a whole

because the Company is mainly engaged in investment holding activities. Therefore, the

sole director of the Company considers that the Company has only one operating segment

under HKFRS 8 Operating Segments . The CODM regularly reviews the Company’s loss

for the period/year, total assets and total liabilities accounted for based on the accounting

policies set out in note 4. In this regard, no segment information is presented. The Company

principally acts as an investment holding company with its registered office in Hong Kong.

The only non-current asset of the Company as at 30 June 2013 is the interest in jointly

controlled entity with carrying amount of HK$70,947,814 and the principal place of

operation of the jointly controlled entity is the Russian Federation.


IIA – 18

6. Income tax expense

Hong Kong Profits Tax is calculated at 16.5% of the estimated assessable profit for

the period/year. No provision for Hong Kong Profits Tax has been made in the Financial

Information as the Company does not have any assessable profit for the period/year.

The income tax expense for the period/year can be reconciled to the loss for the

period/year per statements of profit or loss as follows:

Period from

12.8.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

HK$ HK$ HK$

Loss before tax and

for the period/year (79,007) (67,958) (4,688,150)

Tax at the Hong Kong

tax rate of 16.5% (13,036) (11,213) (773,545)

Tax effect of share of profit of

jointly controlled entity – – (1,494)

Tax effect of expenses

not deductible

for tax purpose 13,036 11,213 775,039

Income tax expense

for the period/year – – –


IIA – 19

7. Loss for the period/year

Loss for the period/year has been arrived at after charging:

Period from

12.8.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

HK$ HK$ HK$

Director’s remuneration – – –

Contribution to retirement

benefit schemes – – –

Other staff costs – – –

Total staff costs – – –

Auditor’s remuneration 11,000 11,000 35,000

8. Sole director’s, chief executive’s emoluments and employees’ remuneration

No emolument is paid or payable to Mr. Oleg Drozdov, the sole director and chief

executive, and employees of the Company during the Relevant Periods. No remuneration was

paid by the Company to the sole director, chief executive and employees of the Company as

an inducement to join or upon joining the Company or as compensation for loss of office. In

addition, the sole director did not waive any emoluments during the Relevant Periods.

9. Dividends

No dividend was paid or proposed during the Relevant Periods, nor has any dividend

been proposed since the end of the reporting period.

10. Loss per share

No loss per share information is presented as its inclusion, for the purpose of this

report, is not considered meaningful.


IIA – 20

11. Interest in jointly controlled entity

At 30 June

2011 2012 2013

HK$ HK$ HK$

Cost of unlisted investments

in jointly controlled entity – – 73,362,225

Share of post-acquisition profit – – 9,056

Exchange realignment – – (2,423,467)

– – 70,947,814

On 10 August 2012, the Company completed the acquisition of its 50% equity interest

in FGCE from Eastern Finance House LLC, a related company which was jointly controlled

by Mr. Oleg Drozdov and Mr. Aleksey Simanchuk. FGCE does not constitute a business

because it did not have any operation and revenue since its incorporation but in the progress

of constructing hotel and entertainment complexes in the IEZ, Primorye, Artyom City,

Russian Federation. The consideration was RUB300,050,000 (equivalent to approximately

HK$73,362,000) which was satisfied by a loan from a shareholder as set out in note 20.

As at 30 June 2013, the Company had interest in the following jointly controlled

entity:

Place of Percentage

incorporation/ Class of interest Principal

Name operation shares held in ownership activities

2011 2012 2013

First Gambling

Company of

the East LLC

Russian

Federation

Chartered

capital

– – 50% Development of

hotel and gaming

business in the IEZ


IIA – 21

The summarised financial information in respect of the Company’s jointly controlled

entity attributable to the Company’s interest therein is set out below:

At 30 June

2011 2012 2013

HK$ HK$ HK$

Current assets – – 9,565,473

Non-current assets – – 102,898,164

Current liabilities – – 15,089,623

Non-current liabilities – – 16,678,104

Income recognised in profit or loss – – 758,070

Expense recognised in profit or loss – – 749,014

12. Amounts due from shareholders

The balances are unsecured, non-interest bearing and repayable on demand.

The maximum amounts outstanding for the period ended 30 June 2011 and the

two years ended 30 June 2012 and 2013 were HK$10,000, HK$10,000 and HK$10,000,

respectively.

13. Bank balances

Bank balances carry interest at the prevailing market interest rate.

14. Amount due to the sole director

The balance is unsecured, non-interest bearing and is repayable on demand.


IIA – 22

15. Loan from a shareholder

The principal amount of the loan is RUB300,050,000 (equivalent to approximately

HK$73,362,000), and is unsecured, non-interest bearing and repayable in one lump-sum on

9 August 2017. Imputed interest is calculated at 12% per annum and the initial fair value

adjustment amounting to RUB135,926,981 (equivalent to approximately HK$33,234,000) is

recognised as deemed capital contribution from a shareholder under capital reserve.

16. Share capital

As at

30.6.2011,

30.6.2012 and

30.6.2013

HK$

Authorised, issued and fully paid:

10,000 ordinary shares of HK$1 each 10,000

The Company was incorporated on 12 August 2010 with an authorised share capital of

HK$10,000 divided into 10,000 ordinary shares of HK$1 each. At the date of incorporation,

1 share of HK$1 each was issued at par to a subscriber to provide the initial share capital

of the Company. An additional 9,999 shares of HK$1 each were subsequently issued to the

shareholders during the period ended 30 June 2011 and the authorised, issued and fully

paid share capital of the Company was HK$10,000 as at 30 June 2011. There were no other

movements in the share capital of the Company during the Relevant Periods.

17. Capital risk management

The Company manages its capital to ensure that the Company will be able to continue

as a going concern while maximising the return to shareholders through the optimisation of

the debt and equity balances. The Company’s overall strategy remains unchanged during the

Relevant Periods.

The capital structure of the Company consists of debt (which include loan from

a shareholder) net of cash and cash equivalents and equity attributable to owners of the

Company, comprising issued share capital and capital reserve.


IIA – 23

The management of the Company reviews the capital structure periodically. As part

of this review, the management considers the cost of capital and the risks associated with

the capital. Based on recommendations of the management, the Company will balance its

overall capital structure through raising of new capital as well as the issue of new debt or the

redemption of existing debt.

18. Financial instruments

(a) Categories of financial instruments

At 30 June

2011 2012 2013

HK$ HK$ HK$

Financial assets


(including cash and

cash equivalents) 16,591 13,795 18,755


At amortised cost 65,598 110,760 43,271,418

(b) Financial risk management objectives and policies

The Company’s financial instruments include amounts due from shareholders,

bank balances, amount due to the sole director and loan from a shareholder. Details of

these financial instruments are disclosed in respective notes. The risks associated with

these financial instruments mainly included market risk (currency risk), credit risk

and liquidity risk. The policies on how to mitigate these risks are set out below. The

management manages and monitors these exposures to ensure appropriate measures

are implemented on a timely and effective manner.


IIA – 24

Market risk

Currency risk

Certain bank balances of the Company are denominated in foreign

currencies. The Company currently does not have a foreign currency hedging

policy. However, the management monitors foreign exchange exposure by

closely monitoring the movement of foreign currency rates.

The carrying amounts of the Company’s foreign currency denominated

monetary assets at the reporting date are as follows:

Assets

At 30 June

2011 2012 2013

HK$ HK$ HK$

United States dollars 6,591 3,795 8,477

The management of the Company are of the opinion that the Company’s

exposure to currency risk is minimal. Accordingly, no sensitivity analysis is

presented.

Credit risk

The Company’s maximum exposure to credit risk which will cause a

financial loss to the Company due to failure to discharge an obligation by the

counterparties is arising from the carrying amount of the respective recognised

financial assets as stated in the statements of financial position.

In order to minimise the credit risk, the management of the Company

has delegated a team responsible for determination of credit worthiness of

individual debt to ensure that follow-up action is taken to recover overdue

debts. In this regard, the management of the Company consider that the

Company’s credit risk is significantly reduced.

The credit risk on bank balances is limited because the counterparties are

banks with high credit ratings.


IIA – 25

The Company has concentration of credit risk on amounts due from

shareholders and the Company considers the credit risk is mitigated after

considering the financial position of the shareholders.

Liquidity risk

In the management of the liquidity risk, the Company closely monitors

its cash position resulting from its operations and maintains a level of cash

and cash equivalents deemed adequate by the management to meet in full its

financial obligations as they fall due for the foreseeable future.

As at 30 June 2013, the Company had net current liabilities of

HK$265,965. The Company is exposed to liquidity risk if it is not able to raise

sufficient funds to meet its financial obligations. The Financial Information

has been prepared on a going concern basis because the Company has entered

into the Investment Agreement, pursuant to which the Company will, subject

to the fulfilment of certain conditions precedent, receive amounts equivalent

to RUB764,456,000 (equivalent to approximately HK$177,812,000) and

RUB83,093,000 (equivalent to approximately HK$19,327,000) in relation to the

subscription of 46,000 and 5,000 new shares of the Company by Summit Ascent

and New Crescent, respectively.

In addition, as part of the financial restructuring procedures under the

Investment Agreement, a loan due to Elegant City with a principal value of

approximately RUB300,050,000 (equivalent to approximately HK$73,362,000)

and together with the balances novated from FGCE amounting to

RUB127,751,000 (equivalent to approximately HK$29,726,000), were novated

to Elegant City which were then capitalised and extinguished in consideration

for the issuance of new shares in the Company to Elegant City. Further, the

Shareholder Parties have agreed that if external financing for the Company’s

ongoing operations is unavailable or inadequate, the funding shortfall due by

the Company shall be funded by the Shareholder Parties to the extent they

have agreed, or may in the future agree, to fund, either in the form of equity

or ordinary shareholder convertible loan. The sole director of the Company

considers that, following the completion of the Investment Agreement which

is expected to be in October 2013, the Company will be able to meet in full its

financial obligations as and when they fall due for a period of at least the next



IIA – 26

The following table details the Company’s remaining contractual

maturity for its non-derivative financial liabilities. The table has been drawn

up based on the undiscounted cash flows of financial liabilities based on the

earliest date on which the Company can be required to pay. The table includes

both interest and principal cash flows.

Liquidity and interest risk table

Weighted

average

interest rate

Repayable

on demand

or within

3 months

Over

1 year

Total

undiscounted

cash flows

Total

carrying

amount

% HK$ HK$ HK$ HK$

At 30 June 2011

Amount due to

the sole director N/A 65,598 – 65,598 65,598

At 30 June 2012

Amount due to


At 30 June 2013

Amount due to


Loan from

a shareholder 12% – 70,841,805 70,841,805 43,096,698

174,720 70,841,805 71,016,525 43,271,418

(c) Fair value

The fair value of financial assets and financial liabilities is determined in

accordance with generally accepted pricing models based on discounted cash flow

analysis.

The sole director of the Company considers that the carrying amounts of

financial assets and financial liabilities recorded at amortised cost in the Financial

Information approximate their fair values.


IIA – 27

19. Related party disclosures

Save as disclosed above for transaction in note 11 and those related party balances at

the end of the reporting period, the Company has entered into the following transaction with

a shareholder:

Period from

12.8.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

HK$ HK$ HK$

Transaction with Elegant City:

Imputed interest on loan from

a shareholder – – 4,568,206

Compensation of key management personnel

No remuneration was paid to the sole director and other members of key

management for the Relevant Periods.

20. Major non-cash transaction

During the year ended 30 June 2013, the Company acquired 50% equity interest in

FGCE at a consideration of RUB300,050,000 (equivalent to approximately HK$73,362,225),

which is directly paid by Elegant City to the related party vendor and remains outstanding as

a loan from a shareholder as of 30 June 2013.


IIA – 28

B. EVENTS AFTER THE REPORTING PERIOD

On 26 August 2013, the Company completed the acquisition of the additional 50% equity

interest in FGCE from Kinetic Investments Inc., an independent third party, with consideration

amounting to US$12,200,000 (equivalent to approximately RUB389,314,200). Upon the completion

of this transaction, FGCE becomes a wholly-owned subsidiary of the Company.

Pursuant to the novation and capitalisation agreements entered into after the reporting period,

a loan due to Elegant City with a principal value of approximately RUB300,050,000 (equivalent

to approximately HK$73,362,000) as at 30 June 2013 and together with the balances novated from

FGCE through Mr. Oleg Drozdov, amounting to RUB127,751,000 (equivalent to approximately

HK$29,726,000) as at 30 June 2013, were novated to Elegant City as non-interest bearing loan and

were effectively capitalised and extinguished in consideration for the issuance of 39,000 new shares

in the Company to Elegant City.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company in respect of any period

subsequent to 30 June 2013.

Yours faithfully

Deloitte Touche Tohmatsu

Certified Public Accountants

Hong Kong

APPENDIX IIB ACCOUNTANTS’ REPORT ON FGCE

IIB – 1

The following is the text of the accountants’ report on FGCE prepared for the purpose of

incorporation in this circular, received from the reporting accountants, Deloitte Touche Tohmatsu,

Certified Public Accountants, Hong Kong.

30 September 2013

The Directors


Dear Sirs,

We set out below our report on the financial information (the “Financial Information”)

regarding First Gambling Company of the East LLC (the “Company”) for the period from 24

September 2010 (date of incorporation) to 30 June 2011 and each of the two years ended 30 June

2013 (the “Relevant Periods”) for inclusion in the circular of Summit Ascent Holdings Limited

(“Summit Ascent”) dated 30 September 2013 in connection with the proposed subscription of 46%

of the enlarged issued share capital of Oriental Regent Limited (“Oriental Regent”), an investment

holding company incorporated in Hong Kong which currently owns 50% of the chartered capital of

the Company (the “Circular”).

The Company was incorporated with limited liability in the Russian Federation on 24

September 2010 and is engaged in the development of hotel and gaming business in Integrated

Entertainment Zone (“IEZ”), Primorye, Artyom City, Russian Federation. The Company is currently

in construction phase and it holds a gaming license awarded by the Administration of the Primorye

Region to conduct gaming activities in IEZ established in the Primorye Region. The Primorye

Region is in the Far Eastern economic region of Russia and has the city of Vladivostok as its

administrative center. The financial year end date of the Company is 30 June.

The statutory financial statements of the Company for the Relevant Periods were prepared in

accordance with Russian Accounting Standards and were audited by ООО«Дальаудиттранс».

For the purpose of this report, the directors of the Company have prepared the financial

statements of the Company in accordance with International Financial Reporting Standards for the

Relevant Periods (the “Underlying Financial Statements”) which were audited by ZAO Deloitte

& Touche CIS in accordance with the International Standards on Auditing. We have examined

the Underlying Financial Statements and performed such additional procedures as necessary in

accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting Accountant” as

recommended by the Hong Kong Institute of Certified Public Accountants (the “HKICPA”).


IIB – 2

The Financial Information of the Company for the Relevant Periods as set out in this report

has been prepared from the Underlying Financial Statements, after making such adjustments as

we consider appropriate for the purpose of preparing our report for inclusion in the Circular. We

have examined the Underlying Financial Statements and performed such additional procedures

as necessary in accordance with the Auditing Guideline 3.340 “Prospectuses and the Reporting

Accountant” as recommended by the HKICPA.

The Underlying Financial Statements are the responsibility of the directors of the Company

who approved their issue. The directors of Summit Ascent are responsible for the contents of

the Circular in which this report is included. It is our responsibility to compile the Financial

Information set out in this report from the Underlying Financial Statements, to form an independent

opinion on the Financial Information and to report our opinion to you.

In our opinion, the Financial Information gives, for the purpose of this report, a true and fair

view of the state of affairs of the Company as at 30 June 2011, 2012 and 2013 and of its results and

cash flows for the Relevant Periods.

EMPHASIS OF MATTERS

Without qualifying our opinion, we draw attention to note 2 to the Financial Information,

which indicates that the Company is currently in the development stage and had net current

liabilities of RUB450,000, RUB24,462,000 and RUB46,795,000 as at 30 June 2011, 2012 and 2013,

respectively, and incurred a loss of RUB28,000 for the period from the date of incorporation to 30

June 2011, a loss of RUB3,032,000 for the year ended 30 June 2012, and a profit of RUB73,000

for the year ended 30 June 2013. The Company also had capital and operating lease commitments

amounting to RUB1,671,451,000 as at 30 June 2013 against cash and cash equivalents of

RUB7,000 maintained as at that date. As further discussed in note 2 to the Financial Information

Oriental Regent has entered into an investment agreement dated 23 August 2013 (the “Investment

Agreement”) with Summit Ascent Russia Limited, a wholly-owned subsidiary of Summit Ascent,

New Crescent Investments Limited (“New Crescent”), Firich Investment Limited and Elegant City

(hereinafter collectively referred to as the “Shareholder Parties”), pursuant to which the Company

would be able, after the successful completion of the Investment Agreement, to obtain financing for

the Company’s ongoing operations from the Shareholder Parties to the extent they have agreed, or

may in the future agree, to fund any funding shortfall due, either in the form of equity or ordinary

shareholder convertible loan. Successful completion of the Company’s development program and

its ability to continue as a going concern, and ultimately, the attainment of profitable operations is

dependent upon future events, including achieving eventual successful completion of the Investment

Agreement, maintaining adequate financing to fulfil its development activities, obtaining regulatory

approval in relation to development of hotel and gaming business in IEZ, and achieving a level of

income adequate to support the Company’s cost structure. Management’s plans in regard to these

matters are also discussed in note 2 to the Financial Information. These conditions, along with

other matters as set forth in note 2 to the Financial Information, indicate the existence of a material

uncertainty which may cast significant doubt about the Company’s ability to continue as a going

concern. The Financial Information does not include any adjustments that might result from the

inability of the Company to operate as a going concern.

Without qualifying our opinion, we also draw attention to note 30 to the Financial

Information, which explains that the Company has entered into various transactions with related

parties in relation to the construction of hotel and entertainment complexes, debt and creditor

financing and other transactions, and is reliant on the fulfilment of obligations and commitments

on the part of the related parties to achieve its strategic objectives. A summary of such transactions,

and the resulting balances at 30 June 2011, 2012 and 2013 are disclosed in the respective notes to

the Financial Information.


IIB – 3

A. FINANCIAL INFORMATION

STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Period from

24.9.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

NOTES RUB’000 RUB’000 RUB’000

Other income 8 – 1,586 6,111

Administrative expenses (15) (4,565) (5,954)

(Loss) profit before tax (15) (2,979) 157

Income tax expense 9 (13) (53) (84)

(Loss) profit and total

comprehensive (expense)

income for the period/year 10 (28) (3,032) 73


IIB – 4

STATEMENTS OF FINANCIAL POSITION

At 30 June

2011 2012 2013


NON-CURRENT ASSETS

Construction in progress 14 2,446 203,226 629,119

Loans receivable 15 – 25,295 –

Long term prepayments and

other receivable 16 1,490 398,032 98,280

Other asset 17 – – 144,068

Intangible assets 18 – 210 182

3,936 626,763 871,649

CURRENT ASSETS

Other receivables 19 – 35,153 56,914

Loans receivable 15 – – 24,108

Bank balances and cash 20 26 19,098 7

26 54,251 81,029

CURRENT LIABILITIES

Other payables 21 476 78,713 97,073

Borrowings due within one year 22 – – 30,751

476 78,713 127,824

NET CURRENT LIABILITIES (450) (24,462) (46,795)

TOTAL ASSETS LESS CURRENT

LIABILITIES 3,486 602,301 824,854


IIB – 5

At 30 June

2011 2012 2013


NON-CURRENT LIABILITIES

Long term payables 23 66 140 93,563

Borrowings due after one year 22 3,335 5,055 47,567

Deferred tax liability 24 13 66 150

3,414 5,261 141,280

NET ASSETS 72 597,040 683,574

CAPITAL AND RESERVES

Chartered capital 25 100 600,100 600,100

Capital reserve – – 3,885

Other reserve – – 82,576

Accumulated losses (28) (3,060) (2,987)

EQUITY ATTRIBUTABLE

TO OWNERS OF

THE COMPANY 72 597,040 683,574


IIB – 6

STATEMENTS OF CHANGES IN EQUITY

Chartered Capital Other Accumulated

capital reserve reserve losses Total

RUB’000 RUB’000 RUB’000 RUB’000 RUB’000

(Note)

Initial chartered capital at

date of incorporation 100 – – – 100


expense for the period – – – (28) (28)

At 30 June 2011 100 – – (28) 72

Increase in chartered capital 600,000 – – – 600,000


expense for the year – – – (3,032) (3,032)

At 30 June 2012 600,100 – – (3,060) 597,040

Contribution from a

shareholder – 3,885 – – 3,885

Deemed capital contribution

from a related party

(Note 23) – – 82,576 – 82,576

Profit and total

comprehensive income

for the year – – – 73 73

At 30 June 2013 600,100 3,885 82,576 (2,987) 683,574

Note: The amounts represent the additional contribution from a shareholder in excess of the chartered capital.


IIB – 7

STATEMENTS OF CASH FLOWS

Period from

24.9.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

RUB’000 RUB’000 RUB’000

OPERATING ACTIVITIES

(Loss) profit for the period/year (28) (3,032) 73

Adjustments for:

Income tax expenses 13 53 84

Interest income – (1,586) (2,969)

Amortisation of intangible assets – 9 53

Other non-cash reconciling items – (416) (1,658)

Operating cash flows before movements in

working capital (15) (4,972) (4,417)

Increase in other receivables – (35,153) (17,432)

Cash used in operations (15) (40,125) (21,849)

Interest paid – – (789)

NET CASH USED IN OPERATING

ACTIVITIES (15) (40,125) (22,638)

INVESTING ACTIVITIES

Additions on construction in progress (3,253) (518,981) (58,216)

Long term prepayments paid (141) (73,013) (22,492)

Loans to a related company – (25,295) –

Acquisition of intangible assets – (219) (25)

Repayment from loans to a related

company – – 1,187

NET CASH USED IN INVESTING

ACTIVITIES (3,394) (617,508) (79,546)


IIB – 8

Period from

24.9.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

RUB’000 RUB’000 RUB’000

FINANCING ACTIVITIES

Proceeds on shares issuance 100 600,000 –

Contribution from shareholders – – 3,885

Increase in other payables – 74,837 4,320

New borrowings raised 3,335 24,172 76,294

Repayment of borrowings – (22,304) (1,406)

NET CASH FROM FINANCING

ACTIVITIES 3,435 676,705 83,093

NET INCREASE (DECREASE) IN CASH

AND CASH EQUIVALENTS 26 19,072 (19,091)


BEGINNING OF THE PERIOD/YEAR – 26 19,098


END OF THE PERIOD/YEAR,

represented by bank balances and cash 26 19,098 7


IIB – 9

NOTES TO THE FINANCIAL INFORMATION

1. General

The Company was incorporated with limited liability in the Russian Federation on

24 September 2010 and its registered office of business is at 185 Kirova Street, Artyom,

Primorskiy Krai, Russian Federation.

At the date of incorporation, Mrs. Irina Putinceva contributed RUB100,000 as initial

chartered capital of the Company and she remained as the registered shareholder of the

Company as of 30 June 2011. During the year ended 30 June 2012, Eastern Finance House

LLC (“Eastern Finance”) acquired all the interests of the Company from Mrs. Irina Putinceva

and Eastern Finance was the sole owner of the Company as of 30 June 2012. In August 2012,

each of Oriental Regent and Kinetic Investments Inc. (“Kinetic”), a company incorporated

in Seychelles, acquired 50% equity interest of the Company and remained as shareholders of

the Company as of 30 June 2013. In August 2013, Oriental Regent acquired the remaining

50% equity interest of the Company from Kinetic. Elegant City Group Limited (“Elegant

City”), a company incorporated in the British Virgin lslands (“BVI”), controls 50% of the

ordinary shares and voting of Oriental Regent. Mr. Oleg Drozdov, a citizen of the Russian

Federation, ultimately owns Elegant City. Diamond Fortune Holdings Limited (“Diamond

Fortune”), a company also incorporated in the BVI controls the other 50% of the ordinary

shares and voting of Oriental Regent. Mr. Aleksey Simanchuk, a citizen of the Russian

Federation, has a controlling interest in Diamond Fortune. Ms. Svetlana llina, a citizen of the

Russian Federation, ultimately owns Kinetic.

On 5 August 2013, Elegant City acquired 4,999 shares of Oriental Regent

(representing 49.99% equity interest in Oriental Regent) from Diamond Fortune. On 12

August 2013, Mr. Oleg Drozdov acquired the remaining one share of Oriental Regent

(representing 0.01% equity interest in Oriental Regent) owned by Diamond Fortune. As of

the date of this report, Oriental Regent is 99.99% owned by Elegant City and 0.01% owned

by Mr. Oleg Drozdov.

The Company is principally engaged in the development of hotel and gaming business

in IEZ. Accordingly, the operations and earnings of the Company continue, from time to

time and in varying degrees, to be affected by economic, political, legislative, fiscal and

regulatory developments of the Russian Federation.

The Financial Information is presented in Russian Roubles (“RUB”), which is also the

functional currency of the Company.


IIB – 10

2. Basis of preparation of financial information

The Company is in the development stage as at 30 June 2011, 2012 and 2013 and had

net current liabilities of RUB450,000, RUB24,462,000, and RUB46,795,000 and incurred

a loss of RUB28,000 for the period from the date of incorporation to 30 June 2011, a loss

of RUB3,032,000 for the year ended 30 June 2012, and a profit of RUB73,000 for the year

then ended 30 June 2013. The Company also had capital and operating lease commitments

amounting to RUB1,671,451,000 as at 30 June 2013 against cash and cash equivalents of

RUB7,000 maintained as at that date. Successful completion of the Company’s development

program and, ultimately, the attainment of profitable operations are dependent upon future

events, including but not limited to obtaining regulatory approval in relation to development

of hotel and gaming business in IEZ, receiving sufficient funding to complete the property

development and funds generated from operations so as to enable the Company to meet its

financial obligations as they fall due.

The Financial Information has been prepared on a going concern basis as Oriental

Regent has entered into the Investment Agreement, pursuant to which Oriental Regent will,

subject to the fulfilment of certain conditions precedent, receive the amounts equivalent

to RUB764,456,000 (equivalent to approximately HK$177,812,000) and RUB83,093,000

(equivalent to approximately HK$19,327,000) in relation to the subscription of 46,000 and

5,000 new shares of Oriental Regent by Summit Ascent and New Crescent, respectively.

In addition, as part of the financial restructuring procedures under the Investment

Agreement, amounts due to a third party and a related company and amount due from a

related company as of 30 June 2013 amounting to RUB105,261,000, RUB50,927,000 and

RUB28,437,000, respectively, were ultimately novated to and assumed by Mr. Oleg Drozdov.

Further, the Shareholder Parties have agreed that if the external financing for the Company’s

ongoing operations is unavailable or inadequate, the funding shortfall due by the Company

shall be funded by the Shareholder Parties to the extent they have agreed, or may in the

future agree, to fund, either in the form of equity or ordinary shareholder convertible loan.

The sole director of the Company considers that, following the completion of the

Investment Agreement which is expected to be in October 2013, the Company will be able to

meet in full its financial obligations as and when they fall due for a period of at least the next



IIB – 11

3. Application of international financial reporting standards

For the purpose of preparing and presenting the Financial Information for the Relevant

Periods, the Company has consistently adopted the International Financial Reporting

Standards (“IFRSs”), International Accounting Standards (“IASs”), amendments and

interpretations that are effective for the Company’s financial year beginning 1 July 2012

throughout the Relevant Periods.

The Company has not early applied the following new and revised IFRSs that have

been issued but are not yet effective during the Relevant Periods.

Amendments to IFRSs Annual Improvements to IFRSs 2009 – 2011 Cycle1

Amendments to IFRS 1 Government Loans1

Amendments to IFRS 7 Disclosures – Offsetting Financial Assets and

Financial Liabilities1

Amendments to IFRS 9 and

IFRS 7

Mandatory Effective Date of IFRS 9 and Transition

Disclosures3

Amendments to IFRS 10,

IFRS 11 and IFRS 12

Consolidated Financial Statements, Joint

Arrangements and Disclosure of Interests in Other

Entities: Transition Guidance1

Amendments to IFRS 10,

IFRS 12 and IAS 27

Investment Entities2

IFRS 9 Financial Instruments3

IFRS 10 Consolidated Financial Statements1

IFRS 11 Joint Arrangements1

IFRS 12 Disclosure of Interests in Other Entities1

IFRS 13 Fair Value Measurement1

IAS 19 (as revised in 2011) Employee Benefits1

IAS 27 (as revised in 2011) Separate Financial Statements1

IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures1


IIB – 12

Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities2

Amendments to IAS 36 Recoverable Amount Disclosures for Non-Financial

Assets2

Amendments to IAS 39 Novation of Derivatives and Continuation of Hedge

Accounting2

IFRIC 20 Stripping Costs in the Production Phase of a Surface

Mine1

IFRIC 21 Levies2

1 Effective for annual periods beginning on or after 1 January 2013



The directors anticipate that the application of these new and revised IFRSs will have

no material impact on the Financial Information.

4. Significant accounting policies

The Financial Information has been prepared in accordance with accounting policies

which conform with IFRSs. In addition, the Financial Information includes applicable

disclosures required by the Rules Governing the Listing of Securities on The Stock Exchange

of Hong Kong Limited and by the Hong Kong Companies Ordinance.

The Financial Information has been prepared on the historical cost basis. Historical

cost is generally based on the fair value of the consideration given in exchange for goods and

services.

The principal accounting policies are set out below.

Construction in progress

Construction in progress is carried at cost less any recognised impairment loss.

Costs include development expenditure, professional fees in respect of construction

services and borrowings costs capitalised. Construction in progress is transferred to

the appropriate category of property, plant and equipment when completed and ready

for intended use.


IIB – 13

Intangible assets

Intangible assets acquired separately

Intangible assets including other assets with finite useful lives that are acquired

separately are carried at costs less accumulated amortisation and any accumulated

impairment losses amounts. Amortisation for intangible assets with finite useful lives

is recognised on a straight-line basis over their estimated useful lives. The estimated

useful life and amortisation method are reviewed at the end of each reporting period,

with the effect of any changes in estimate being accounted for on a prospective basis.

An intangible asset is derecognised on disposal, or when no future economic

benefits are expected from use or disposal. Gains or losses arising from derecognition

of an intangible asset are measured at the difference between the net disposal proceeds

and the carrying amount of the asset and are recognised in profit or loss in the period

when the asset is derecognised.

Leasing

Leases are classified as finance leases whenever the terms of the lease transfer

substantially all the risks and rewards of ownership to the lessee. All other leases are

classified as operating leases.

The Company as lessee

Operating lease payments are recognised as an expense on a straight-line basis

over the lease term.

Foreign currencies

In preparing the Financial Information, transactions in currencies other than

the entity’s functional currency (foreign currencies) are recognised at the rates of

exchange prevailing at the dates of the transactions. At the end of each reporting

period, monetary items denominated in foreign currencies are retranslated at the rates

prevailing at that date. Non-monetary items that are measured in terms of historical

cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the

retranslation of monetary items, are recognised in profit or loss in the period in which

they arise.


IIB – 14

Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or

production of qualifying assets, which are assets that necessarily take a substantial

period of time to get ready for their intended use or sale, are added to the cost of those

assets, until such time as the assets are substantially ready for their intended use or

sale.

Investment income earned on the temporary investment of specific borrowings

pending their expenditure on qualifying assets is deducted from the borrowing costs

eligible for capitalisation.

All other borrowing costs are recognised in profit or loss in the period in which

they are incurred.

Taxation

Income tax expense represents the sum of the tax currently payable and

deferred tax.

The tax currently payable is based on taxable profit for the period/year. Taxable

profit differs from amount reported in the statement of profit or loss and other

comprehensive income because it excludes items of income or expense that are taxable

or deductible in other years and it further excludes items that are never taxable or

deductible. The Company’s liabilities for current tax is calculated using tax rates that

have been enacted or substantively enacted by the end of the reporting period.

Deferred tax is recognised on temporary differences between the carrying

amounts of assets and liabilities in the Financial Information and the corresponding

tax base used in the computation of taxable profit. Deferred tax liabilities are

generally recognised for all taxable temporary differences. Deferred tax assets are

generally recognised for all deductible temporary difference to the extent that it

is probable that taxable profits will be available against which those deductible

temporary differences can be utilised. Such deferred tax assets and liabilities are not

recognised if the temporary difference arises from the initial recognition (other than in

a business combination) of assets and liabilities in a transaction that affects neither the

taxable profit nor the accounting profit.


IIB – 15

The carrying amount of deferred tax assets is reviewed at the end of the

reporting period and reduced to the extent that it is no longer probable that sufficient

taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected

to apply in the period in which the liability is settled or the asset is realised, based on

tax rate (and tax laws) that have been enacted or substantively enacted by the end of

the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax

consequences that would follow from the manner in which the Company expects, at

the end of the reporting period, to recover or settle the carrying amount of its assets

and liabilities.

Current and deferred tax is recognised in profit or loss.

Financial instruments

Financial assets and financial liabilities are recognised in the statement of

financial position when the Company becomes a party to the contractual provisions of

the instrument.

Financial assets and financial liabilities are initially measured at fair value.

Transaction costs that are directly attributable to the acquisition or issue of financial

assets and financial liabilities are added to or deducted from the fair value of the

financial assets or financial liabilities, as appropriate, on initial recognition.

Financial assets

The Company’s financial assets are classified as loans and receivables.

The classification depends on the nature and purpose of the financial assets and is

determined at the time of initial recognition.


IIB – 16


The effective interest method is a method of calculating the amortised cost

of a debt instrument and of allocating interest income over the relevant period. The

effective interest rate is the rate that exactly discounts estimated future cash receipts

(including all fees paid or received that form an integral part of the effective interest

rate, transaction costs and other premiums or discounts) through the expected life of

the debt instrument, or, where appropriate, a shorter period, to the net carrying amount

on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments.


Loans and receivables are non-derivative financial assets with fixed or

determinable payments that are not quoted in an active market. Loans and receivables

(including long term receivable, loans receivable, other receivables and bank balances

and cash) are measured at amortised cost using the effective interest method, less

any impairment losses (see accounting policy on impairment loss on financial assets

below).

Impairment of financial assets

Financial assets are assessed for indicators of impairment at the end of each

reporting period. Financial assets are considered to be impaired where there is

objective evidence that, as a result of one or more events that occurred after the initial

recognition of the financial asset, the estimated future cash flows of the financial

assets have been affected.

Objective evidence of impairment of financial assets could include:

• significant financial difficulty of the issuer or counterparty; or

• breach of contract, such as default or delinquency in interest or principal

payments; or

• it becoming probable that the borrower will enter bankruptcy or financial

re-organisation.


IIB – 17

For financial assets carried at amortised cost, the amount of the impairment loss

recognised is the difference between the asset’s carrying amount and the present value

of the estimated future cash flows, discounted at the financial asset’s original effective

interest rate.

The carrying amount of the financial asset is reduced by the impairment loss

directly for all financial assets.

For financial assets measured at amortised cost, if, in a subsequent period, the

amount of impairment loss decreases and the decrease can be related objectively to an

event occurring after the impairment losses was recognised, the previously recognised

impairment loss is reversed through profit or loss to the extent that the carrying

amount of the asset at the date the impairment is reversed does not exceed what the

amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity instruments

Debt and equity instruments issued by the Company are classified either as

financial liabilities or as equity in accordance with the substance of the contractual

arrangements and the definitions of a financial liability and an equity instrument.


The effective interest method is a method of calculating the amortised cost of

a financial liability and of allocating interest expense over the relevant period. The

effective interest rate is the rate that exactly discounts estimated future cash payments

(including all fees and points paid or received that form an integral part of the

effective interest rate, transaction costs and other premiums or discounts) through the

expected life of the financial liability, or, where appropriate, a shorter period, to the

net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis.

Equity instruments

An equity instrument is any contract that evidences a residual interest in the

assets of the Company after deducting all of its liabilities. Equity instruments issued

by the Company are recognised at the proceeds received.


IIB – 18


The Company’s financial liabilities are generally classified as other financial

liabilities, including other payables, long term payables and borrowings, and are

subsequently measured at amortised cost, using the effective interest method.

Derecognition

The Company derecognises a financial asset when the contractual rights to

the cash flows from the asset expire, or when it transfers the financial asset and

substantially all the risks and rewards of ownership of the asset to another party. If

the Company neither transfers nor retains substantially all the risks and rewards of

ownership and continues to control the transferred asset, the Company continues

to recognises the asset to the extent of its continuing involvement and recognise an

associated liability. If the Company retains substantially all the risks and rewards

of ownership of a transferred financial asset, the Company continues to recognise

the financial asset and also recognises a collateralised borrowing for the proceeds

received.

On derecognition of a financial asset in its entirety, the difference between the

asset’s carrying amount and the sum of the consideration received and receivable is

recognised in profit or loss.

The Company derecognises financial liabilities when, and only when, the

Company’s obligations are discharged, cancelled or they expire. The difference

between the carrying amount of the financial liability derecognised and the

consideration paid and payable is recognised in profit or loss.

Retirement benefit costs

Payments to Russian Federation State Pension Fund are recognised as an

expense when employees have rendered service entitling them to the contributions.


IIB – 19

Impairment losses on tangible and intangible assets

At the end of the reporting period, the Company reviews the carrying amounts

of its tangible and intangible assets with finite useful lives to determine whether

there is any indication that those assets have suffered an impairment loss. If any

such indication exists, the recoverable amount of the asset is estimated in order

to determine the extent of the impairment loss (if any). When it is not possible to

estimate the recoverable amount of an individual asset, the Company estimates the

recoverable amount of the cash-generating unit to which the asset belongs. When a

reasonable and consistent basis of allocation can be identified, corporate assets are

also allocated to individual cash-generating units, or otherwise they are allocated to

the smallest group of cash-generating units for which a reasonable and consistent

allocation basis can be identified.

Recoverable amount is the higher of fair value less costs to sell and value in

use. In assessing value in use, the estimated future cash flows are discounted to their

present value using a pre-tax discount rate that reflects current market assessments of

the time value of money and the risks specific to the asset for which the estimates of

future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to

be less than its carrying amount, the carrying amount of the asset (or a cash-generating

unit) is reduced to its recoverable amount. An impairment loss is recognised

immediately in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the

asset (or cash-generating unit) is increased to the revised estimate of its recoverable

amount, but so that the increased carrying amount does not exceed the carrying

amount that would have been determined had no impairment loss been recognised for

the asset (or a cash-generating unit) in prior years. A reversal of an impairment loss is

recognised as income immediately.


IIB – 20

5. Key sources of estimation uncertainty

In the application of the Company’s accounting policies, which are described in note

4, the directors of the Company are required to make judgments, estimates and assumptions

about the carrying amounts of assets and liabilities that are not readily apparent from

other sources. The estimates and associated assumptions are based on historical experience

and other factors that are considered to be relevant. Actual results may differ from these

estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis.

Revisions to accounting estimates are recognised in the period in which the estimate is

revised if the revision affects only that period, or in the period of the revision and future

periods if the revision affects both current and future periods.

The following are the key assumptions concerning the future, and other key sources

of estimation uncertainty at the end of the reporting period, that have a significant risk of

causing a material adjustment to the carrying amounts of assets and liabilities within the next

financial year.

Going concern assumptions

As disclosed in note 2, the Financial Information has been prepared on a going

concern basis based on the assumption that the Company will be able to obtain the

necessary funding to support its operations and meet its financial obligations as

and when they fall due. The outcome may be different and significant judgement is

required by the board of directors of the Company in assessing the Company’s ability

to continue as a going concern.

Estimated impairment of other receivables and loans receivable

When there is objective evidence of impairment loss, the Company takes into

consideration the estimation of future cash flows. The amount of the impairment loss

is measured as the difference between the asset’s carrying amount and the present

value of estimated future cash flows (excluding future credit losses that have not been

incurred) discounted at the financial asset’s original effective interest rate (i.e. the

effective interest rate computed at initial recognition). Where the actual future cash

flows are less than expected, a material impairment loss may arise. No impairment

loss was recognised during the Relevant Periods.


IIB – 21

Operating environment

Russian legislation in relation to the gaming industry is currently developing

and the tax regime, including exemptions for corporate income tax and VAT, and

low gaming tax might be changed by local authorities. Management believes that

any possible increase of gaming tax rates will not materially affect their competitive

position in the industry. The potential effect as a result of changes in existing

regulations cannot be estimated, but could be material. Management believes that the

Company has met the Government’s federal and regional requirements concerning

environmental matters.

6. Segment information

The board of directors of the Company, being the chief operating decision maker (the

“CODM”), assess the performance and allocate the resources of the Company as a whole

because the Company is mainly engaged in the development of hotel and gaming business

in IEZ. Therefore, the directors of the Company consider that the Company has only one

operating segment under the IFRS 8 Operating Segments. The CODM regularly reviews the

Company’s (loss) profit for the period/year, total assets and total liabilities accounted for

based on the accounting policies set out in note 4. In this regard, no segment information is

presented.

All non-current assets of the Company amounting to RUB3,936,000, RUB599,150,000

and RUB870,750,000 are located in the Russian Federation, the principal place of operation

at 30 June 2011, 2012 and 2013, respectively.

7. Finance costs

Period from

24.9.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

RUB’000 RUB’000 RUB’000

Interest on borrowings wholly

repayable within five years 66 383 7,356

Less: interest capitalised (66) (383) (7,356)

– – –


IIB – 22

8. Other income

Period from

24.9.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

RUB’000 RUB’000 RUB’000

Interest income – 1,586 2,969

Others – – 3,142

– 1,586 6,111

9. Income tax expense

Period from

24.9.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

RUB’000 RUB’000 RUB’000

Russian current tax – – –

Deferred tax expense (note 24) 13 53 84

13 53 84

Russian corporation tax is calculated at a rate of 20% of the estimated assessable

profit for the period/year.

No Russian corporation tax has been made as the Company has no assessable profit

for the period/year.


IIB – 23

The income tax expense for the period/year can be reconciled to the (loss) profit

before tax per statements of profit or loss and other comprehensive income as follows:

Period from

24.9.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

RUB’000 RUB’000 RUB’000

(Loss) profit before tax (15) (2,979) 157

Tax at Russian corporation tax rate

of 20% for the period/year (3) (596) 31

Tax effect of expenses not

deductible for tax purpose 16 966 1,275

Tax effect of income not taxable for

tax purpose – (317) (1,222)

Income tax expense for

the period/year 13 53 84

Russian tax, currency and customs legislation are subject to varying interpretation

and changes, which can occur frequently. Management’s interpretation of such legislation as

applied to the transactions and activities of the Company may be challenged by the relevant

regional and federal authorities, in particular, the way of accounting for tax purposes of

some income and expenses of the Company as well as deductibility of input VAT from

suppliers and contractors. Tax authorities may be taking a move assertive position in their

interpretation of the legislation and assessments. As a result, significant additional taxes,

penalties and interest may arise. Fiscal periods remain open to review by the authorities

in respect of taxes for three calendar years preceding the year of review. Under certain

circumstances such review may cover longer periods.


IIB – 24

10. (Loss) profit for the period/year

(Loss) profit for the period/year has been arrived at after charging:

Period from

24.9.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

RUB’000 RUB’000 RUB’000

Directors’ remuneration – 68 221

Other staff costs:

Salaries and allowances – 994 1,531

Contributions to Russian

Federation State Pension Fund

(Note) – 209 312

Total staff costs, including

directors’ remuneration – 1,271 2,064

Amortisation of intangible assets – 9 53

Auditor’s remuneration – – –

Net exchange loss – 416 259

Note: The Company is required to contribute from the range of 0% to 30% of payroll costs to Russian

Federation State Pension Fund, depending on the annual gross remuneration of the staff, to fund

the benefits. The only obligation of the Company with respect to the retirement benefit scheme is to

make the specified contributions.


IIB – 25

11. Directors’, chief executive’s emoluments and employees’ remuneration

Directors’ and chief executive’s emoluments

Details of the emoluments paid or payable to the directors and the chief

executive of the Company during the Relevant Periods are as follows:

Period ended 30 June 2011

Directors’

fees

Salaries

and

allowances

Contribution

to Russian

Federation

State

Pension Fund Total

RUB’000 RUB’000 RUB’000 RUB’000

Mrs. Irina Putinceva – – – –

Mr. Petr Sindyukiv – – – –

Mr. Dmitry Krylov – – – –

– – – –


IIB – 26

Year ended 30 June 2012

Directors’

fees

Salaries

and

allowances

Contribution

to Russian

Federation

State

Pension Fund Total

RUB’000 RUB’000 RUB’000 RUB’000

Mrs. Irina Putinceva,

resigned on

26 July 2011 – – – –

Mr. Petr Sindyukov,

resigned on

31 December 2011 – – – –

Mr. Dmitry Krylov,

resigned on

31 December 2011 – – – –

Mr. Valeriy Vasyilenko – – – –

Mr. Igor Akulich – 56 12 68

– 56 12 68

Year ended 30 June 2013

Directors’

fees

Salaries

and

allowances

Contribution

to Russian

Federation

State

Pension Fund Total

RUB’000 RUB’000 RUB’000 RUB’000

Mr. Valeriy Vasyilenko – 63 14 77

Mr. Igor Akulich – 118 26 144

Mr. Oleg Drozdov – – – –

– 181 40 221


IIB – 27

Mrs. Irina Putinceva was also the chief executive of the Company for the

period ended 30 June 2011 and up to 26 July 2011. Mr. Igor Akulich succeeded Mrs.

Irina Putinceva as the chief executive of the Company and he stepped down on 13

November 2012 but remained as a director of the Company. Mr. Valeriy Vasyilenko

took up the position and remains as the chief executive as of 30 June 2013. All of

their emoluments disclosed above include those for services rendered by them as chief

executive. Neither the chief executive nor any of the directors waived any emoluments

during the Relevant Periods.

Employees’ remuneration

Of the five highest paid individuals of the Company, Mr. Igor Akulich and

Mr. Valeriy Vasyilenko were directors and chief executive of the Company for the

respective periods as mentioned above, whose emoluments are included above.

There was no employees’ remuneration for the period ended 30 June 2011. The

remunerations of the remaining four and three individuals for the years ended 30 June

2012 and 2013, respectively, are as follows:

Period from

24.9.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

RUB’000 RUB’000 RUB’000

Salaries and allowances – 594 1,044

Contributions to Russian

Federation State Pension

Fund – 131 230

– 725 1,274


IIB – 28

Their emoluments were within the following bands:

Period from

24.9.2010 Year Year

to ended ended

30.6.2011 30.6.2012 30.6.2013

No. of No. of No. of

employees employees employees

Nil to HK$1,000,000

(equivalent to Nil

to approximately

RUB4,030,600) – 4 3

12. Dividends

No dividend was paid or proposed during the Relevant Periods, nor has any dividend

been proposed since the end of the reporting period.

13. (Loss) earnings per share

No (loss) earnings per share information is presented as its inclusion, for the purpose

of this report, is not considered meaningful.


IIB – 29

14. Construction in progress

RUB’000

COST

At 24 September 2010 –

Additions 2,446

At 30 June 2011 2,446

Additions 200,780

At 30 June 2012 203,226

Additions 425,893

At 30 June 2013 629,119

Borrowing costs of RUB66,000, RUB383,000 and RUB7,356,000 arising on the

finance specifically obtained for the construction of the hotel and entertainment complexes

in the IEZ for the period ended 30 June 2011 and two years ended 30 June 2012 and 2013,

respectively, were capitalised.

The construction in progress, mainly includes the hotel and entertainment complexes

in construction, is situated on land plots under a medium-term lease from a third party with a

lease term of 14 years.

15. Loans receivable

The unsecured loans which are denominated in RUB were made to Eastern Finance,

which was jointly controlled by Mr. Oleg Drozdov and Mr. Aleksey Simanchuk, during the

year ended 30 June 2012. The loans are unsecured and bear interest at 12% per annum with

both principal and interest repayable on 31 December 2013.

The maximum amounts outstanding for the period ended 30 June 2011 and two years

ended 30 June 2012 and 2013 were nil, RUB24,108,000 and RUB24,108,000, respectively.


IIB – 30

16. Long term prepayments and other receivable

At 30 June

2011 2012 2013

RUB’000 RUB’000 RUB’000

Prepayments for equipment – 72,838 95,422

Prepayments for construction in

progress 1,349 321,404 1,959

Prepayments for engineering

services – 1,472 –

Interest receivable from a related

company (Note) – 1,586 –

Others 141 732 899

1,490 398,032 98,280

Included in the balance as at 30 June 2012, interest receivable of RUB1,586,000

was due from Eastern Finance with the principal amount due set out in note 15, and

RUB300,555,000 are prepaid to a related company in which Mr. Igor Akulich has control.

Note: The maximum amounts outstanding for the period ended 30 June 2011 and two years ended 30 June

2012 and 2013 were nil, RUB1,586,000 and nil, respectively.

17. Other asset

Other asset represents the right for connection to the local electricity supply network

assigned from Dalta-Vostok-1, a related company which is jointly controlled by Mr. Oleg

Drozdov and Ms. Tatyana Andreevna Grushina, during the year ended 30 June 2013. The

right is amortized over the lease term of the land plots in which the hotel and entertainment

complexes are situated. Details of the consideration payable to the related party are disclosed

in note 23.


IIB – 31

18. Intangible assets

Trademarks

RUB’000

COST

At 24 September 2010 and 30 June 2011 –

Addition 219

At 30 June 2012 219

Addition 25

At 30 June 2013 244

AMORTISATION

At 24 September 2010 and 30 June 2011 –

Charge for the year 9

At 30 June 2012 9

Charge for the year 53

At 30 June 2013 62

CARRYING VALUES

At 30 June 2011 –

At 30 June 2012 210

At 30 June 2013 182

The intangible assets comprised of trademarks registered by the Company with

estimated useful life of five years.


IIB – 32

19. Other receivables

At 30 June

2011 2012 2013

RUB’000 RUB’000 RUB’000

Value-added tax receivables – 34,930 51,813

Interest receivable from a related

company (Note) – – 4,329

Other receivables – 223 772

– 35,153 56,914

Included in the balance as at 30 June 2013, approximately RUB4,329,000 is due from

Eastern Finance with the principal amount due set out in note 15.

Note: The maximum amounts outstanding for the period ended 30 June 2011 and two years ended 30 June

2012 and 2013 were nil, nil and RUB4,329,000, respectively.

20. Bank balances

Bank balances carry interest at the prevailing market interest rate.

21. Other payables

At 30 June

2011 2012 2013

RUB’000 RUB’000 RUB’000

Construction payables 476 3,658 17,130

Other tax payables – 260 214

Other payables and accrued

expenses (Note) – 74,795 79,729

476 78,713 97,073


IIB – 33

Note: The amount mainly comprises amount due to a company controlled by Mr. Petr Sindyukov, a

director of the Company until 31 December 2011, which failed to meet an obligation to contribute

RUB300,000,000 as chartered capital in the Company. Accordingly the Company recognises the

amount previously contributed of approximately RUB74,445,000 and RUB76,537,000 as at 30 June

2012 and 2013, respectively, as other payables.

22. Borrowings

At 30 June

2011 2012 2013

RUB’000 RUB’000 RUB’000

Borrowings repayable:

Within one year – – 30,751

More than one year, but not

exceeding two years – 5,055 47,567

More than two years, but not

exceeding five years 3,335 – –

3,335 5,055 78,318

The ranges of effective interest rates (which are also equal to contractual interest

rates) on the Company’s borrowings are as follows:

At 30 June

2011 2012 2013

Fixed-rate RUB denominated

unsecured borrowings 8-12% 1-12% 0.01-12%

During the period ended 30 June 2011 and the two years ended 30 June 2012 and

2013, the Company’s weighted average borrowing rates were approximately 10.69%, 9.78%

and 11.57% per annum, respectively.

The principal and interest of the borrowings are to be repaid at the maturity dates.


IIB – 34

Included in the borrowings as at 30 June 2011, RUB50,000 was advanced from

Mr. Aleksey Simanchuk, controlling shareholder of Diamond Fortune, and RUB1,380,000

was advanced from Dalta-Vostok-1 and RUB510,000 was advanced from a wholly-owned

subsidiary of Eastern Finance. There was another advance of RUB1,395,000 from a company

in which Mr. Igor Akulich has control.

Included in the borrowings as at 30 June 2012, RUB1,055,000 was advanced from Mr.

Aleksey Simanchuk and RUB4,000,000 was advanced from a company in which Mr. Igor

Akulich has control.

Included in the borrowings as at 30 June 2013, RUB 1,011,000 was advanced from

Mr. Aleksey Simanchuk and RUB1,368,000 was advanced from a wholly-owned subsidiary

of Eastern Finance. Included in the balance is also an advance of RUB49,602,000 from a

company in which Mr. Igor Akulich has control and RUB15,000 due to Mr. Igor Akulich

directly, respectively.

23. Long term payables

At 30 June

2011 2012 2013

RUB’000 RUB’000 RUB’000

Long term payable – – 92,704

Accrued interest expense 66 140 859

66 140 93,563

In June 2011, Dalta-Vostok-1 entered into an agreement with the state-owned energy

company for a right for connection to local electricity supply network. In March 2012,

an agreement was entered into by Dalta-Vostok-1 and the Company for assignment to the

Company of the right for connection of the local electricity supply network to the parcels of

land leased by the Company at consideration of RUB170,000,000, representing the portion

of the consideration paid to the energy company which is attributable to the power supply

capacity of the land parcels leased by the Company. Pursuant to the aforesaid assignment, the

Company has entered into an agreement in November 2012 with the energy company for the

electricity connection right.

Long term payable is the amount due to Dalta-Vostok-1 for acquiring a right for

connection to local electricity supply network during the year ended 30 June 2013. The

balance is unsecured, non-interest bearing and repayable four years after the completion of

construction of hotel and entertainment complexes, which is expected to be in November

2018.


IIB – 35

The long term payable amounted to approximately RUB170,000,000 but its estimated

fair value on inception was RUB87,424,000 by using a discount rate of 12% per annum.

Accordingly, the difference of RUB82,576,000 was recognised as deemed contribution from

a related company in the statement of changes in equity for the year ended 30 June 2013.

Included in the balance of long term payable as at 30 June 2011, interest payables

of RUB1,000 was outstanding to Mr. Aleksey Simanchuk, and RUB30,000 was outstanding

to Dalta-Vostok-1 and RUB8,000 was outstanding to a wholly-owned subsidiary of Eastern

Finance. Interest payable of RUB27,000 was also outstanding to a company in which Mr.

Igor Akulich has control.

Included in the balance of long term payable as at 30 June 2012, interest payables of

RUB3,000 and RUB137,000 were outstanding to Mr. Aleksey Simanchuk and a company in

which Mr. Igor Akulich has control.

Included in the balance of long term payable as at 30 June 2013, interest payables of

RUB2,000, RUB26,000 and RUB1,397,000 were outstanding to Mr. Aleksey Simanchuk, a

wholly-owned subsidiary of Eastern Finance and a company in which Mr. Igor Akulich has

control, respectively.

24. Deferred tax liability

The following is the major deferred tax liability recognised arising from temporary

differences and movements thereon during the Relevant Periods are as follows:

RUB’000

At 24 September 2010 (date of incorporation) –

Charge to profit or loss 13

At 30 June 2011 13


At 30 June 2012 66


At 30 June 2013 150


IIB – 36

25. Chartered capital

The Company was incorporated with chartered capital of RUB100,000 and the amount

was fully contributed as at 30 June 2011. In September 2011, the Company increased its

chartered capital by RUB600,000,000 and such increment was fully paid up as at 30 June

2012. There was no movement in the chartered capital of the Company during the year ended

30 June 2013 and the Company has chartered capital of RUB600,100,000 at 30 June 2013.

26. Capital risk management

The Company manages its capital to ensure that the Company will be able to continue

as a going concern while maximising the return to shareholders through the optimisation of

the debt and equity balances. The Company’s overall strategy remains unchanged during the

Relevant Periods. The capital structure of the Company consists of borrowings, net of cash

and cash equivalents and equity attributable to owners of the Company, comprising chartered

capital and capital reserve.

The management of the Company reviews the capital structure periodically. As part

of this review, the management considers the cost of capital and the risks associated with

the capital. Based on recommendations of the management, the Company will balance its

overall capital structure through raising of new capital as well as the issue of new debt or the

redemption of existing debt.

27. Financial instruments

(a) Categories of financial instruments

At 30 June

2011 2012 2013

RUB’000 RUB’000 RUB’000

Financial assets


(including cash and cash

equivalents) 26 81,132 81,029


At amortised cost 3,877 83,648 267,646


IIB – 37

(b) Financial risk management objectives and policies

The Company’s financial instruments include long term receivable, other

receivables, loans receivable, bank balances and cash, other payables, borrowings and

long term payables. Details of these financial instruments are disclosed in respective

notes. The risks associated with these financial instruments include market risk

(interest rate risk), credit risk and liquidity risk. The policies on how to mitigate these

risks are set out below. The management manages and monitors these exposures to

ensure appropriate measures are implemented on a timely and effective manner.

Market risk

Interest rate risk

The Company is exposed to fair value interest rate risk in relation to

fixed-rate loans receivable and borrowings. The Company is also exposed

to cash flow interest rate risk in relation to bank balances carried prevailing

market interest rate. Since all loans receivable and borrowings have a

contracted fixed rate and bank balances are short term in nature, the exposure

to fluctuations in market interest rate is considered insignificant and thus no

sensitivity analysis on such risk has been prepared.

Credit risk

The Company’s maximum exposure to credit risk which will cause a

financial loss to the Company due to failure to discharge an obligation by the

counterparties is arising from the carrying amount of the respective recognised

financial assets as stated in the statements of financial position.

In order to minimise the credit risk, the management of the Company

has delegated a team responsible for determination of credit worthiness of other

debtors to ensure that follow-up action is taken to recover overdue debts. In this

regard, the directors of the Company consider that the Company’s credit risk is

significantly reduced.

The Company has concentration of credit risk on loans to a related

company (set out in note 15). Credit risk is mitigated as the related company

is jointly controlled by Mr. Oleg Drozdov who has agreed to provide adequate

funds to enable the related company to meet its financial obligations as they fall

due in the foreseeable future.


IIB – 38

Liquidity risk

In the management of the liquidity risk, the Company closely monitors

its cash position resulting from its operations and maintains a level of cash

and cash equivalents deemed adequate by the management to meet in full its

financial obligations as they fall due for the foreseeable future.

As at 30 June 2013, the Company had net current liabilities of

RUB46,795,000. The Company is exposed to liquidity risk if it is not able to

raise funds to meet its financial obligations. Oriental Regent has entered into

an Investment Agreement, pursuant to which Oriental Regent will, subject to

the fulfilment of certain conditions precedent, receive the amounts equivalent

to RUB764,456,000 (equivalent to approximately HK$177,812,000) and

RUB83,093,000 (equivalent to approximately HK$19,327,000) from Oriental

Regent in relation to the subscription of 46,000 and 5,000 new shares of

Oriental Regent by Summit Ascent and New Crescent, respectively. In addition,

pursuant to the Investment Agreement, as part of the financial restructuring

procedures, amounts due to a third party and a related company and amount

due from a related company as of 30 June 2013 amounting to RUB105,261,000,

RUB50,927,000 and RUB28,437,000, respectively, were ultimately novated to

and assumed by Mr. Oleg Drozdov. Further, the Shareholder Parties have agreed

that if the external financing is unavailable or inadequate, the funding shortfall

due by the Company shall be funded by the Shareholder Parties to the extent

they have agreed, or may in the future agree, to fund, either in the form of

equity or ordinary shareholder convertible loan.


IIB – 39

The following table details the Company’s remaining contractual

maturity for its non-derivative financial liabilities. The table has been drawn

up based on the undiscounted cash flows of financial liabilities based on the

earliest date on which the Company can be required to pay. The table includes

both interest and principal cash flows.

Liquidity and interest risk table

RepayableWeighted on demand Total

average or within 1 – 5 undiscounted Carryinginterest rate 1 year years cash flows amount

% RUB’000 RUB’000 RUB’000 RUB’000

At 30 June 2011Other payables N/A 476 – 476 476

Long term payable N/A – 66 66 66

Borrowings due after one year 10.69% – 4,302 4,302 3,335

476 4,368 4,844 3,877

At 30 June 2012Other payables N/A 78,453 – 78,453 78,453

Long term payable N/A – 140 140 140


78,453 5,957 84,410 83,648

At 30 June 2013Other payables N/A 95,765 – 95,765 95,765

Long term payables 12% – 170,859 170,859 93,563

Borrowings due within one year 4% 30,989 – 30,989 30,751


126,754 228,015 354,769 267,646


IIB – 40

(c) Fair value

The fair value of financial assets and financial liabilities is determined in

accordance with generally accepted pricing models based on discounted cash flow

analysis.

The directors of the Company consider that the carrying amounts of financial

assets and financial liabilities recorded at amortised cost in the Financial Information

approximate their fair values.

28. Operating lease

As lessee

Minimum lease payments paid under operating lease during the Relevant

Periods:

Period from

24.9.2010 to

30.6.2011

Year ended

30.6.2012

Year ended

30.6.2013

RUB’000 RUB’000 RUB’000

Land plots and office space – 1,573 2,139

Operating lease payments represent rental paid or payable by the Company for

land plots from a third party and its office space from a related company. The leases

have terms of 14 years for land plots and 5 years for office space. The lease contracts

do not contain escalation clauses or any other changes of the fixed lease payments.

The Company does not have an option to purchase the leased land plots or office space

at the expiration of the lease periods.


IIB – 41

At the end of each reporting period, the Company had commitments for future

minimum lease payments under non-cancellable operating lease which fall due as

follows:

At 30 June

2011 2012 2013

RUB’000 RUB’000 RUB’000

Within one year – 2,037 2,037

In the second to fifth years

inclusive – 8,602 7,812

Over five years – 10,969 9,609

– 21,608 19,458

29. Capital commitments

At 30 June

2011 2012 2013

RUB’000 RUB’000 RUB’000

Capital expenditure in respect of

the additions on construction

in progress contracted for but

not provided in the Financial

Information 204 1,936,605 1,651,993

Included in above, the Company had capital commitments amounting to nil,

RUB1,674,784,000 and RUB1,540,617,000 contracted with a related party in which Mr. Igor

Akulich has control at 30 June 2011, 2012 and 2013, respectively.


IIB – 42

30. Related party disclosures

Save as disclosed elsewhere in this report for those related party balances at the end of

the reporting period, the Company has entered into many transactions with related parties in

relation to the construction of hotel and entertainment complexes, debt and creditor financing

and other transactions, and is reliant on the fulfilment of obligations and commitments on the

part of the related parties to achieve its strategic objectives. A summary of such transactions

during the Relevant Periods are disclosed below:

Period from24.9.2010 Year Year

to ended ended30.6.2011 30.6.2012 30.6.2013RUB’000 RUB’000 RUB’000

Transactions with companies in

which Mr. Oleg Drozdov has

joint control:

Project design income – – 551

Capitalised interest expense from

borrowings – – (5,280)

Interest income from loans

receivable – 1,586 –

Transactions with companies

in which Mr. Oleg Drozdov is

a director:

Interest income from loans

receivable – – 2,969

Construction costs paid – – (9,553)

Transactions with company in

which Mr. Igor Akulich has

control:

Construction costs paid – (172,508) (389,274)

Capitalised interest expense from

borrowings (66) (383) (2,076)

Transactions with company in

which Ms. Marina Lomakina,

spouse of Mr. Oleg Drozdov,

has control:

Rental expense – (218) (873)


IIB – 43

During the year ended 30 June 2013, the Company was assigned the right for

connection to the local electricity supply network at consideration of RUB144,068,000 from

Dalta-Vostok-1 and included in “Other asset” in the statements of financial position.

The above transactions were conducted in accordance with the terms and conditions

mutually agreed by both parties.

At the end of the reporting period, the Company also had commitment for future

minimum lease payment under non-cancellable operating lease with a related party for the

office space, the amount of which was included in note 28, falls due as follows:

At 30 June

2011 2012 2013

RUB’000 RUB’000 RUB’000

Within one year – 789 789

In the second to fifth years

inclusive – 3,158 2,368

– 3,947 3,157

Compensation of key management personnel

Compensation expenses of key management personnel during the Relevant

Periods, which represented by the directors’ remuneration, were disclosed in note 11.


IIB – 44

B. EVENT AFTER THE REPORTING PERIOD

Pursuant to the novation and capitalisation agreements entered into after the reporting period,

the outstanding amounts due to a third party and a related company and amount due from a related

company as of 30 June 2013 amounting to RUB105,261,000, RUB50,927,000 and RUB28,437,000,

respectively, were ultimately novated to and assumed by Mr. Oleg Drozdov.

C. SUBSEQUENT FINANCIAL STATEMENTS

No audited financial statements have been prepared by the Company in respect of any period

subsequent to 30 June 2013.

Yours faithfully



Hong Kong

APPENDIX III MANAGEMENT DISCUSSION AND ANALYSIS OF THE TARGET GROUP

III – 1

(A) ORIENTAL REGENT

For the period from 12 August 2010 (date of incorporation) to 30 June 2011 and the two

years ended 30 June 2012 and 2013

Financial and business review

Oriental Regent is an investment holding company set up for the purpose of holding

investment. During the period from 12 August 2010 (date of incorporation) to 30 June

2011 and the two years ended 30 June 2012 and 2013, FGCE did not have any significant

operation and revenue and the business activities of Oriental Regent revolved mainly around

the planning and structuring of investments, chiefly the acquisition of 50% equity interest

in FGCE, the operating entity responsible for the development of the Lot 9 Project. For

the period from 12 August 2010 (date of incorporation) to 30 June 2011 and the two years

ended 30 June 2012 and 2013, the administrative expenses incurred by Oriental Regent were

HK$0.1 million, HK$0.1 million and HK$0.1 million respectively. For the year ended 30

June 2013, Oriental Regent had recorded imputed interest expense of approximately HK$4.6

million arising from an interest-free loan from Elegant City.

On 10 August 2012, Oriental Regent completed the acquisition of 50% equity interest

in FGCE from a related company which was jointly controlled by Mr. Oleg Drozdov and

another individual. FGCE was accounted for under the equity accounting method. Oriental

Regent principally acquired the construction in progress of the Lot 9 Project through the

acquisition of FGCE. The consideration was approximately HK$73.4 million, which was

satisfied by the shareholder loan from Elegant City.

Oriental Regent recorded net losses for the period from 12 August 2010 (date

of incorporation) to 30 June 2011 and the two years ended 30 June 2012 and 2013 of

approximately HK$0.1 million, HK$0.1 million and HK$4.7 million respectively. The net

losses for the period from 12 August 2010 (date of incorporation) to 30 June 2011 and

the year ended 30 June 2012 were mainly due to the administrative expenses incurred by

Oriental Regent incurred during these periods while the net loss for the year ended 30 June

2013 was primarily made up of the aforesaid imputed interest expense.


III – 2

Financial position and capital structure

Total assets of Oriental Regent were approximately HK$17,000, HK$14,000 and

HK$71.0 million respectively as at 30 June 2011, 2012 and 2013. The total asset amount as

at 30 June 2013 was mainly represented by Oriental Regent’s interest in FGCE as accounted

for under the equity accounting method.

Total liabilities of Oriental Regent were approximately HK$0.1 million, HK$0.2

million and HK$43.4 million respectively as at 30 June 2011, 2012 and 2013. The total

liabilities of Oriental Regent as at 30 June 2013 mainly comprised the interest-free loan with

principal amount of approximately HK$73.4 million from Elegant City, which was carried at

an amortised cost of approximately HK$43.1 million.

As at 30 June 2011 and 2012, Oriental Regent had deficiencies in capital and reserves

of approximately HK$0.1 million and HK$0.1 million respectively. As at 30 June 2013,

Oriental Regent had a total equity of approximately HK$27.6 million, which was mainly

attributable to a capital reserve of approximately HK$32.4 million generated from the

deemed capital contribution from Elegant City as a result of the provision of the aforesaid

interest-free loan while offset by accumulated losses of approximately HK$4.8 million.

Liquidity, financial resources, gearing, charge on assets and capital commitments

As at 30 June 2011, 2012 and 2013, Oriental Regent had current ratios of

approximately 0.19 times, 0.09 times and 0.07 times respectively. Gearing ratios (defined as

total liabilities divided by total assets) were approximately 515.9%, 1,092.9% and 61.1% as

at 30 June 2011, 2012 and 2013 respectively.

During the period under review, Oriental Regent mainly funded its operation by the

shareholders’ equity and the shareholders’ loan from Elegant City. The shareholder loan

from Elegant City carried at an amortised cost of approximately of HK$43.1 million was

unsecured, denominated in RUB, non-interest bearing and repayable by 9 August 2017.

As at 30 June 2013, Oriental Regent did not have any significant capital and other

commitments.


III – 3

Significant investments, material acquisitions and disposals of subsidiaries or associated

companies

During the period under review, save for the acquisition of 50% equity interest

in FGCE during the year ended 30 June 2013, Oriental Regent did not have any other

significant investments, material acquisitions or disposals of subsidiaries or associated

companies.

Foreign exchange exposures

The business activities of Oriental Regent were exposed to fluctuations in exchange

rates as certain receivables of the Company are denominated in foreign currencies. During

the period under review, Oriental Regent did not have a foreign currency hedging policy. The

management of Oriental Regent were of the opinion that the Oriental Regent’s exposure to

currency risk was minimal.

Contingent liabilities

Oriental Regent had no contingent liabilities during the period under review.

Employees and remuneration policies

During the period under review, Oriental Regent, being an investment holding

company, had no employees.

(B) FGCE

For the period from 24 September 2010 (date of incorporation) to 30 June 2011 and the

two years ended 30 June 2012 and 2013

Financial and business review

During the period under review, FGCE, as the holder of the Gaming License, was

principally engaged in management of construction of hotel and entertainment complexes in

the IEZ. As set out in the letter of the Board of this circular, FGCE is the operating company

responsible for the development of the Lot 9 Project. During the period from 24 September

2010 (date of incorporation) to 30 June 2011, neither revenue nor income was recorded

during the very early stages of development of the Lot 9 Project. For the two years ended

30 June 2012 and 2013, FGCE recorded other income of approximately RUB1.6 million and

RUB6.1 million, respectively, which were mainly derived from unsecured loans receivable


III – 4

made to a related company of Mr. Oleg Drozdov. The administrative expenses of FGCE were

approximately RUB15,000, RUB4.6 million and RUB6.0 million respectively. The increase

of administrative expenses illustrated the gradual development of the Lot 9 Project.

FGCE recorded net losses for the period from 24 September 2010 (date of

incorporation) to 30 June 2011 and the year ended 30 June 2012 of approximately

RUB28,000 and RUB3.0 million respectively, since the administrative expenses exceeded the

income, if any, during this period. For the year ended 30 June 2013, the other income and

administrative expenses had largely offset each other and hence FGCE recorded a minimal

net profit of approximately RUB0.1 million.

Financial position and capital structure

Total assets of FGCE were approximately RUB4.0 million, RUB681.0 million and

RUB952.7 million respectively as at 30 June 2011, 2012 and 2013. The total assets as at

30 June 2013 principally represented the construction in progress of the Lot 9 Project of

approximately RUB629.1 million, prepayments for construction and development of the Lot

9 Project of approximately RUB98.3 million, the aforesaid unsecured loans receivable made

to a related company of Mr. Oleg Drozdov of approximately RUB24.1 million (unsecured,

denominated in RUB, interest bearing at 12% per annum and both principal and interest

are repayable in full by 31 December 2013), value-added tax receivables of approximately

RUB51.8 million and the estimated fair value of the right for connection to the local

electricity supply network of approximately RUB144.1 million.

Total liabilities of FGCE were approximately RUB3.9 million, RUB84.0 million and

RUB269.1 million respectively as at 30 June 2011, 2012 and 2013. The total liabilities as

at 30 June 2013 were principally made up of a payable balance of approximately RUB79.7

million owed to a former director of FGCE (the “Potential Shareholder”) which failed to

meet an obligation to contribute capital into FGCE, borrowings from a company controlled

by a director of FGCE of approximately RUB49.6 million and long term payable carrying

at an amortised cost of approximately RUB92.7 million to a related company of Mr. Oleg

Drozdov in respect of the acquisition of the right for connection to the local electricity

supply network.


III – 5

As at 30 June 2011, 2012 and 2013, FGCE had equity of approximately RUB$0.1

million, RUB$597.0 million and RUB$683.6 million respectively. The increase in equity

was mainly due to the additional contribution of share capital of RUB600.0 million during

the year ended 30 June 2012 and the recognition of fair value adjustment on inception of

the aforesaid long term payable to a related company of Mr. Oleg Drozdov of approximately

RUB82.6 million during the year ended 30 June 2013.

Liquidity, financial resources, gearing, charge on assets and capital commitments

As at 30 June 2011, 2012 and 2013, FGCE had current ratios of approximately 0.05

times, 0.69 times and 0.63 times respectively. Gearing ratios (defined as total liabilities

divided by total assets) were approximately 98.2%, 12.3% and 28.2% as at 30 June 2011,

2012 and 2013 respectively.

During the period under review, FGCE mainly funded its operation and construction

of the Lot 9 Project by the shareholders’ equity, payable to the Potential Shareholder, loans

from a director of FGCE and the aforesaid long-term payable to a related company of Mr.

Oleg Drozdov. The payable balance owed to the Potential Shareholder was unsecured,

denominated in RUB, non-interest bearing and repayable on demand. The borrowing of

FGCE were unsecured, denominated in RUB and carried various fixed interest rates at

8% to 12%, 1% to 12% and 0.01% to 12% per annum for the period from 24 September

2010 (date of incorporation) to 30 June 2011 and the two years ended 30 June 2012 and

2013 respectively. The long term payable to a related company of Mr. Oleg Drozdov

was unsecured, denominated in RUB, non-interest bearing and repayable four years after

completion of the construction of the gaining and resort complex on Lot 9 which is expected

to be in November 2018.

As at 30 June 2013, FGCE had net current liabilities of approximately RUB46.8

million, capital and other commitments of approximately RUB1,671.5 million against a cash

balance of approximately RUB7,000 as at 30 June 2013. Albeit the net current liabilities

position as well as the significant capital commitment relative to existing available financial

resources, after taking into account the expected completion of the Proposed Investment

and ongoing financial support to be received from Oriental Regent upon Completion and

thereafter as a result of continual funding contribution into Oriental Regent, either from

external financing or further financing from the then Oriental Regent Shareholders, FGCE is

assumed to be a going concern.


III – 6

Significant investments, material acquisitions and disposals of subsidiaries or associated

companies

During the period under review, save for the investment in the Lot 9 Project, FGCE

did not have any significant investments, material acquisitions or disposals of subsidiaries or

associated companies.

Foreign exchange exposures

The business activities of FGCE were not exposed to fluctuations in exchange rates

during the period under review.

Contingent liabilities

FGCE had no contingent liabilities during the period under review.

Employees and remuneration policies

During the period under review, FGCE employed a growing team to manage the

development of the Lot 9 Project, with staff number of 1, 5 and 4 as at 30 June 2011, 2012

and 2013 respectively, and total wages and benefits incurred were approximately nil, RUB0.7

million and RUB1.3 million respectively.

APPENDIX IV UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED GROUP

IV – 1

1. UNAUDITED PRO FORMA FINANCIAL INFORMATION

A. UNAUDITED PRO FORMA FINANCIAL INFORMATION OF THE ENLARGED

GROUP

The following is an illustrative and unaudited pro forma consolidated statement of assets

and liabilities of the Enlarged Group which has been prepared based on the unaudited condensed

consolidated statement of financial position of the Group as set out in the interim report of the

Group for the six months ended 30 June 2013 after making pro forma adjustment as set out in note

2 below.

This unaudited pro forma consolidated statement of assets and liabilities of the Enlarged

Group has been prepared to illustrate the effects of the Proposed Investment, as if the Proposed

Investment had taken place on 30 June 2013. It has been prepared on the basis of the notes set out

below and is consistent with the accounting policies adopted by the Group.

The unaudited pro forma financial information has been prepared by the directors of the

Company for illustrative purposes only and because of its hypothetical nature, it may not give a true

picture of the financial position of the Enlarged Group had the Proposed Investment been completed

as at 30 June 2013 or any future date.


IV – 2

Unaudited Pro Forma Consolidated Statement of Assets and Liabilities

Before the

Proposed

Investment

Pro forma

adjustment

After the

Proposed

Investment

HK$’000 HK$’000 HK$’000

(Note1) (Note2)

NON-CURRENT ASSET

Interest in a joint venture – 185,763 185,763

CURRENT ASSETS

Inventories 181 – 181

Trade and other receivables 7,106 – 7,106

Tax recoverable 962 – 962

Cash and cash equivalents 108,943 (185,763) (76,820) (Note 3)

117,192 (185,763) (68,571)

CURRENT LIABILITIES

Trade and other payables 6,177 – 6,177

Provisions 219 – 219

6,396 – 6,396

NET CURRENT ASSETS 110,796 (185,763) (74,967)

NET ASSETS 110,796 – 110,796


IV – 3

Notes:

1. The balances are extracted from the unaudited condensed consolidated statement of financial position of the

Group included in the published interim report of the Group for the six months ended 30 June 2013 dated

18 September 2013.

2. Before the Proposed Investment, the Target Group completed certain financial restructuring procedures

which include a series of novation, extinguishment and capitalisation of the indebtedness owed by the Target

Group as set out on pages 12 to 13 of this Circular. The adjustment represents the total consideration for the

Proposed Investment amounting to RUB764,456,000 (equivalent to approximately HK$185,763,000).

3. The Company intends to fund the Consideration for the Proposed Investment either by debt financing or

issuance of new securities.

4. For the purpose of preparing the unaudited pro forma consolidated statement of assets and liabilities,

translation of amounts in RUB into HK$ has been made at the exchange rate of RUB1 = HK$0.243.


IV – 4

B. INDEPENDENT REPORTING ACCOUNTANTS’ ASSURANCE REPORT ON THE

COMPILATION OF PRO FORMA FINANCIAL INFORMATION

The following is the text of a report, prepared for the purpose of incorporation in this

circular, received from Deloitte Touche Tohmatsu, Certified Public Accountants, Hong Kong.

TO THE DIRECTORS OF SUMMIT ASCENT HOLDINGS LIMITED

We have completed our assurance engagement to report on the compilation of pro forma

financial information of Summit Ascent Holdings Limited (the “Company”) and its subsidiaries

(hereinafter collectively referred to as the “Group”) by the directors of the Company (the

“Directors”) for illustrative purposes only. The pro forma financial information consists of the pro

forma consolidated statement of assets and liabilities as at 30 June 2013 and related notes as set

out on pages IV – 2 to IV – 3 of the circular issued by the Company dated 30 September 2013 (the

“Circular”). The applicable criteria on the basis of which the Directors have compiled the pro forma

financial information are described on page IV – 1 of the Circular.

The pro forma financial information has been compiled by the Directors to illustrate the

impact of the proposed subscription of 46% of the enlarged issued share capital of Oriental Regent

Limited on the Group’s financial position as at 30 June 2013 as if the transaction had taken place

at 30 June 2013. As part of this process, information about the Group’s financial position has

been extracted by the Directors from the unaudited condensed consolidated statement of financial

position of the Group included in the published interim report of the Group for the six months

ended 30 June 2013 dated 18 September 2013.

Directors’ Responsibilities for the Pro Forma Financial Information

The Directors are responsible for compiling the pro forma financial information

in accordance with paragraph 4.29 of the Rules Governing the Listing of Securities on

The Stock Exchange of Hong Kong Limited (the “Listing Rules”) and with reference to

Accounting Guideline 7 Preparation of Pro Forma Financial Information for Inclusion

in Investment Circulars (“AG 7”) issued by the Hong Kong Institute of Certified Public

Accountants (“HKICPA”).


IV – 5

Reporting Accountants’ Responsibilities

Our responsibility is to express an opinion, as required by paragraph 4.29(7) of the

Listing Rules, on the pro forma financial information and to report our opinion to you. We

do not accept any responsibility for any reports previously given by us on any financial

information used in the compilation of the pro forma financial information beyond that owed

to those to whom those reports were addressed by us at the dates of their issue.

We conducted our engagement in accordance with Hong Kong Standard on Assurance

Engagements (“HKSAE”) 3420 Assurance Engagements to Report on the Compilation of

Pro Forma Financial Information Included in a Prospectus issued by the HKICPA. This

standard requires that the reporting accountants comply with ethical requirements and plan

and perform procedures to obtain reasonable assurance about whether the Directors have

compiled the pro forma financial information in accordance with paragraph 4.29 of the

Listing Rules and with reference to AG 7 issued by the HKICPA.

For purposes of this engagement, we are not responsible for updating or reissuing any

reports or opinions on any historical financial information used in compiling the pro forma

financial information, nor have we, in the course of this engagement, performed an audit or

review of the financial information used in compiling the pro forma financial information.

The purpose of pro forma financial information included in an investment circular is

solely to illustrate the impact of a significant event or transaction on unadjusted financial

information of the Group as if the event had occurred or the transaction had been undertaken

at an earlier date selected for purposes of the illustration. Accordingly, we do not provide

any assurance that the actual outcome of the event or transaction at 30 June 2013 would have

been as presented.

A reasonable assurance engagement to report on whether the pro forma financial

information has been properly compiled on the basis of the applicable criteria involves

performing procedures to assess whether the applicable criteria used by the Directors in the

compilation of the pro forma financial information provide a reasonable basis for presenting

the significant effects directly attributable to the event or transaction, and to obtain sufficient

appropriate evidence about whether:

• The related pro forma adjustments give appropriate effect to those criteria; and

• The pro forma financial information reflects the proper application of those

adjustments to the unadjusted financial information.


IV – 6

The procedures selected depend on the reporting accountants’ judgment, having

regard to the reporting accountants’ understanding of the nature of the Group, the event or

transaction in respect of which the pro forma financial information has been compiled, and

other relevant engagement circumstances.

The engagement also involves evaluating the overall presentation of the pro forma

financial information.

We believe that the evidence we have obtained is sufficient and appropriate to provide

a basis for our opinion.

Opinion

In our opinion:

(a) the pro forma financial information has been properly compiled on the basis

stated;

(b) such basis is consistent with the accounting policies of the Group; and

(c) the adjustments are appropriate for the purposes of the pro forma financial

information as disclosed pursuant to paragraph 4.29(1) of the Listing Rules.



Hong Kong

30 September 2013

APPENDIX V PROPERTY VALUATION OF THE TARGET GROUP

V – 1

The following is the text of a letter, summary of valuation and valuation certificate, prepared

for the purpose of incorporation in this circular received from American Appraisal China Limited,

an independent property valuer, in connection with its valuation as at 30 June 2013 of the property

interests held by the Target Group.

30 September 2013

The Board of Directors


Room 3701, 37/F,

The Centrium,

60 Wyndham Street, Central,

Hong Kong

Dear Sirs,

In accordance with the instructions from Summit Ascent Holdings Limited (the “Company”,

and its subsidiaries together referred to as the “Group”) to value the property interests of

Construction-in-progress (“CIP”) works of a casino resort complex erected on Land Lot 9,

located at building 11, Poberezhye buhti “Pionerskoy”, Town Artem, Primorskiy Krai, the Russian

Federation (“Russia”) (the “Property”). We understand that the Group is planning to make an

investment in a gaming and resort development project in Russia by subscribing 46% of the

enlarged issued share capital of Oriental Regent Limited, which currently owns 50% of First

Gambling Company of the East LLC (“FGCE”).

We confirm that we have carried out inspection for the property interests, made relevant

enquiries and obtained such further information as we consider necessary for the purpose of

providing you with our opinion of the market value of such property interests as at 30 June 2013

(the “date of valuation”).

This letter that forms part of our valuation report explains the basis and methodology of

valuation and clarifies our assumptions made on the ownerships to the property interests and the

limiting conditions.


V – 2

BASIS OF VALUATION

Our valuation is our opinion of the market value which is defined in accordance with the

HKIS Valuation Standards of the Hong Kong Institute of Surveyors to mean “the estimated amount

for which an asset or liability should exchange on the valuation date between a willing buyer and a

willing seller in an arm’s-length transaction after proper marketing and where the parties had each

acted knowledgeably, prudently and without compulsion”.

Market value is understood as the value of an asset and liability estimated without regard to

costs of sale or purchase (or transaction) and without offset for any associated taxes or potential

taxes.

This estimate specifically excludes an estimated price inflated or deflated by special

considerations or concessions granted by anyone associated with the sale, or any element of special

value.

VALUATION METHODOLOGY

Cost approach aims to determine a property’s depreciated replacement cost, which is defined

as the gross replacement cost of the buildings, from which appropriate deductions may then be

made to allow for age, condition, economic/external and functional obsolescence and environmental

factors etc. All of these might result in the existing buildings being worth less to the undertaking in

occupation than would a new replacement.

In the course of our valuation, we have considered the incurred construction costs of the CIP

works provided to us as at the date of valuation. The CIP works is erected on Lot 9 which is rented

and occupied by FGCE. We have attributed no commercial value to the property because there are

prohibitions against subletting and/or assignment contained in the subject land lease and/or tenancy

agreement or the lack of substantial profit rent, and CIP works erected on the subject land cannot

be freely transferrable in the open market with regards to the conditions in the relevant investment

contract and sublease agreement as per the Russia legal opinion.

TITLE INVESTIGATION

We have been provided with copies of documents in relation to the title of the property

interests located in Russia. However, we have not scrutinized the original documents to verify

ownership or to verify any amendments, which may not appear on the copies handed to us. We have

relied to a considerable extent on the information provided by the Company and the Russian legal

opinion provided by the Russian legal adviser, CMS Russia, on Russian law regarding the property

interests located in the Russia.


V – 3

All legal documents disclosed in this letter and valuation certificate are for reference only

and no responsibility is assumed for any legal matters concerning the legal title to the property

interests set out in this letter and valuation certificate.

ASSUMPTIONS

We have assumed that the owner(s) of the property interests has free and uninterrupted rights

to use, lease, sell or mortgage the property interests for the whole of the unexpired term of its

respective land use rights.

We have assumed that all consents, approvals and licenses from relevant government

authorities for the buildings and structures erected or to be erected thereon have been granted.

It is assumed that all applicable zoning, land use regulations and other restrictions have

been complied with unless non-conformity has been stated, defined and considered in the valuation

certificates. Further, it is assumed that the utilization of the land and improvements is within the

boundaries of the property interests described and that no encroachment or trespass exists unless

noted in the valuation certificate.

Other special assumptions of the Property, if any, have been stated in the footnotes of the

respective valuation certificate.

LIMITING CONDITIONS

We have relied to a considerable extent on the information provided by the Group and have

accepted advice given to us by the Group on such matters as statutory notices, easements, tenure,

occupancy, planning approvals, site and floor areas and all other relevant matters. Dimensions and

areas included in the valuation certificate are based on information contained in the documents

provided to us and are only approximations.

We have no reason to doubt the truth and accuracy of the information as provided to us by

the Group. We were also advised by the Group that no material facts have been omitted from the

information so supplied. We consider we have been provided with sufficient information to reach an

informed view.

Our Mr. Victor Mashkov has inspected the CIP works on 31 July 2013. No structural survey

has been made and we are therefore unable to report as to whether the Property are or are not free

of rot, infestation or any other structural defects. No tests were carried out on any of the services.


V – 4

No site investigations have been carried out to determine the suitability of the ground

conditions or the services for the development site. Our valuation is made on the basis that these

aspects are satisfactory and that no extraordinary expenses or delays will be incurred during the

construction period.

No allowance has been made in our valuation for any charges, mortgages or amounts

owing on the Property nor for any expenses or taxation which may be incurred in effecting a sale.

Unless otherwise stated, it is assumed that the interests are free of encumbrances, restrictions and

outgoings of an onerous nature which could affect its value.

COMPLIANCE

In valuing the property interests, we have complied with all the requirements contained in

Paragraph 34(2), (3) of Schedule 3 of the Companies Ordinance (Cap. 32), Chapter 5 and Practice

Note 12 to the Rules Governing the Listing of Securities issued by The Stock Exchange of Hong

Kong Limited and The HKIS Valuation Standards (2012 Edition) published by the Hong Kong

Institute of Surveyors.

We hereby certify that we have neither present nor a prospective interest in the property

interest or the value reported.

We enclose herewith the summary of valuation and the valuation certificate.

Unless otherwise stated, all monetary amounts stated in this report are in US Dollars (USD).

The currency we adopted as of the date of valuation is approximately USD1=RUB32.7090. The

summary of valuation and valuation certificates are enclosed herewith.

Yours Faithfully,


American Appraisal China Limited

Eric M. H. Poon Alexander N. Lopatnikov

MRICS, MHKIS, RPS (GP), CIREA, CFA MRICS, RSA

Assistant Vice President Managing Director

Note: Mr. Eric Poon, who is a Chartered Valuation Surveyor, has over 12 years experience in valuation of properties in

Hong Kong, the PRC and overseas.

Mr. Alexander Lopatnikov, who is a Chartered Valuation Surveyor, has over 10 years experience in valuation of

properties in Russia and overseas.

The valuation on the property interests in overseas is supported by American Appraisal (AAR), Inc.


V – 5

SUMMARY OF VALUATION

Property

Capital Value

in existing state as at

30 June, 2013

(USD)

The CIP works of

a casino resort complex erected on Lot 9,

located at building 11, Poberezhye buhti “Pionerskoy”,

Town Artem, Primorskiy Krai, Russia No Commercial Value

Total: No Commercial Value


V – 6

VALUATION CERTIFICATE

Property Description and Tenure

Particulars of

Occupancy

Capital Value in

existing state as at

30 June, 2013

(USD)

The CIP works of a casino

resort complex erected on

Lot 9, located at building

11, Poberezhye buhti

“Pionerskoy”, Town Artem,

Primorskiy Krai,

Russia

The Property comprises of the CIP

works of the proposed casino resort

complex with a total proposed gross

floor area of approximately 32,698.70

sq.m. erected on a parcel of Lot 9

with a site area of approximately

90,455 sq.m.

The construction works of the casino

resort complex started in June 2012

and scheduled to be completed in the

second half of 2014.

The proposed casino resort complex

will comprise the casino area, the

hotel with about 119 guest rooms,

parking spaces, food and beverages,

lounge and restaurants as well as

swimming pool, fitness center,

multifunction rooms, the office rooms

and technical areas.

Pursuant to the sublease agreement

entered between OJSC “Nash Dom

Primorye” (the “Lessor”) and FGCE

(the “Lessee”), the Land Plot 9 is

rented by the Lessee for a term

commencing from 27 November

2011 and to be expired 20 July 2025

at a yearly rental of RUB1,602,789

inclusive of value added tax (“VAT”)

The casino resort

complex was undergoing

construction stage as at

the date of valuation.

No Commercial Value

Notes:

1. Pursuant to Ownership Certificate #. 25-АБ № 91762921 dated 21 February 2013, the CIP works of casino resort

complex on Lot 9, is held by FGCE.


V – 7

2. Pursuant to the Urban development plan dated 26 September 2011, the Property located in the Integrated

Entertainment Zone (“IEZ”) of the Primorye Region is subject to the following conditions:–

Site area: 90,455 sq.m.

Usage: Multifunctional entertainment complex with casino

Plot Ratio: 0.6

Permissible Gross Floor Area: 54,147 sq.m.

3. Pursuant to the Approval of Construction Project #RU 25302000-000032 dated 31 May 2012, issued by the Artem

town Administration, where the property is located, the CIP works of the proposed casino resort complex with

hotel development was approved with a total gross floor area of about 32,698.7 sq.m. The CIP works comprises one

building and includes parking area for 29 cars, food and beverages, lounge and restaurants, swimming pool, fitness

center, multifunction rooms, office rooms and technical areas on the 1st floor, casino rooms on the 2nd floor, hotel

for 119 rooms on the 4th and 5th floor.

4. As advised by the Company, the total construction cost incurred in the CIP works of the property was about

RUB496,500,000 excluding VAT, or about USD15,180,000 at exchange rate of RUB32.7090/USD1 as at the date of

valuation, which has been taken into account in the course of our valuation, assuming the CIP works complies with

all relevant local planning and building regulations with all related cost or fee fully settled.

5. Pursuant to a sublease agreement #1 dated 27 July, 2011 and additional agreement #2 dated 28 December, 2012

entered between OJSC “Nash Dom Primorye” (the “Lessor”) and LLC “FGCE” (the “Lessee”), the Lot 9 with a

site area of 90,455 sq,m is rented by the Lessee for a term commencing from 27 November 2011 and to be expired

on 20 July 2025 at a yearly rental of RUB1,602,789 or about USD49,000 inclusive of VAT at exchange rate of

RUB32.7090/USD1 as at the date of valuation.

6. We are of the opinion that the depreciated replacement cost of the CIP works as of the valuation date would be about

USD15,180,000.

7. We have attributed no commercial value to the property because there are prohibitions against subletting and/

or assignment contained in the subject land lease and/or tenancy agreement or the lack of substantial profit rent,

and CIP works erected on the subject land cannot be freely transferrable in the open market with regards to the

conditions in the relevant investment contract and sublease agreement as per the Russia legal opinion.

8. In the course of valuation, we have made the following assumptions:

– FGCE can occupy the subject land of the property and carry out the CIP works under the above mentioned

sublease agreement which is valid and enforceable.

– The CIP works of the property complies all local laws and regulations as well as the terms and conditions

under the sublease agreement.


V – 8

9. The Property is located on Lot 9 with a site area of 90,455 sq. m., within the Integrated Entertainment Zone of

“Primorye” (IEZ) with total floor area about 2,630,928 sq.m. specially assigned for development with casino

resorts complex and hotel, as well as with gas boiler house, distribution substation, sewage treatment facilities in

accordance with the Investment agreement #1.

FGCE obtained the permission for organizing and managing the gambling games starting on 22 April 2012

according to the Decree of Department of the special economic and gaming zone of Primorye region, approved on 6

October 2011.

The subject Property is located at about 25 km south east of airport of Artem and about 50 km north east of

Vladivostok, which is capital of Primorskiy Krai.

10. The Russia legal opinion states, inter alias, that:

a. FGCE occupies the subject land according to the Sublease agreement No. 1 dated 27 July 2011 (as amended

by additional agreement No. 2 dated 28 December 2012) (hereinafter, the “Sublease Agreement”).

b. The Sublease Agreement is registered by the state registration body and is in force according to extract from

Unified State Register of Real Estate Property and Transaction Therewith No. 00/003/2013/-14743 dated 20

June 2013. Therefore, the sublease interests of FGCE in the subject land are recognized under the Russian

law.

c. The Sublease Agreement is strictly interrelated to Investment Agreement No. 1, dated 1 June 2011, executed

between FGCE and OJSC “Nash dom – Primorye” (hereinafter, the Land Investment Agreement). The rights

and obligations under the Land Investment Agreement were transferred from OJSC “Nash dom – Primorye”

to Open Joint-Stock Company “PRIMORSKY KRAI DEVELOPMENT CORPORATION” according to the

assignment agreement dated 5 September 2013.

d. The subleased subject land is part of a bigger land plot which is leased by the tenant in full under Head

Lease agreement No. 1 dated 22 July 2010 and the lease period is until 20 July 2025. The Head Lease

Agreement is in effect and registered by the appropriate registration body. The said tenant is entitled to

sublease the subject land under the consent of the owner. Such consent has been provided, which authorizes

the tenant to sublease the parts of the subject land to FGCE.

e. The owner of the subject land is Primorskiy region, which means the subject land is considered a state

property.

f. According to the sublease agreement the subject land is provided to FGCE for the purposes of construction

of the multifunctional entertainment complex with casino (permitted use). It cannot be used for the purposes

other than specified therein.

g. According to the Land Investment Agreement, FGCE shall be the owner of the facilities, which will be built

on the subject land at its own expense.


V – 9

h. FGCE owns an incomplete construction, which is the hotel complex with the total footprint area 8,366.20

sq.m. built on the subject land (hereinafter, the “Incomplete Construction”). The Incomplete Construction is

40% finished.

i. Title certificate series 25-AB No. 917629 dated 21 February 2013 and the extract from Unified State

Register of Real Estate Property and Transaction Therewith No. 00/003/2013/-14743 dated 20 June 2013

confirm the ownership of FGCE to the Incomplete Construction.

j. Therefore, the ownership of FGCE to the Incomplete Construction is recognized under the Russian law.

k. In the event the sublease agreement is terminated, the Incomplete Construction shall be bought out from

FGCE under the price specified by an independent appraiser (cl. 10.1 of the Land Investment Agreement).

l. The Incomplete Construction has no encumbrances which are the subject to state registration. The

unregistered encumbrances were not discovered.

m. FGCE is not the owner of the subject land. Therefore, the right to dispose the subject land is significantly

limited. In order to assign the rights and obligations under the sublease agreements or sublease the subject

land, the consent of the tenant of the Head Lease Agreement is required.

n. The sale or other separate alienation of the incomplete construction by FGCE, if it will be done prior to

completion of the whole complex, may be considered as a breach of the investment contract and result in

termination of the sublease agreement.

APPENDIX VI GENERAL INFORMATION

VI – 1

1. RESPONSIBILITY STATEMENT

This circular, for which the Directors collectively and individually accept full responsibility,

includes particulars given in compliance with the Listing Rules for the purpose of giving

information with regard to the Company. The Directors, having made all reasonable enquiries,

confirm that to the best of their knowledge and belief the information contained in this circular is

accurate and complete in all material respects and not misleading or deceptive, and there are no

other matters the omission of which would make any statement herein or this circular misleading.

2. DISCLOSURE OF INTERESTS

(a) Directors’ and chief executive’s interests and short positions in the Shares,

underlying Shares and debentures of the Company and its associated

corporations

As at the Latest Practicable Date, the interests and short position of each director

and chief executive of the Company in the shares, underlying shares and debentures of the

Company or any of its associated corporations (within the meaning of Part XV of the SFO)

which (a) were required to be notified to the Company and the Stock Exchange pursuant

to Divisions 7 and 8 of Part XV of the SFO (including interests and short position which

the director is taken or deemed to have under such provisions of the SFO); or (b) were

required, pursuant to section 352 of the SFO, to be entered in the register maintained by the

Company referred to therein; or (c) were required, pursuant to the Model Code for Securities

Transactions by Directors of Listed Issuers (the “Model Code”) contained in the Listing

Rules to be notified to the Company and the Stock Exchange were as follows:

(I) Long position in the shares of the Company

Ordinary shares of HK$0.05 each of the Company

Name of Director Capacity

Nature of

interest

Number of

ordinary

shares held

Approximate

% of issued

share capital

Mr. Lawrence Ho Interest of

controlled

corporation

Corporate 229,856,232 36.83%

Mr. Wang, John Peter Ben Beneficial owner Personal 79,949,990 12.81%


VI – 2

(II) Long position in underlying shares of equity derivatives of the Company

Details of the interests of directors and chief executive of the Company in share

options granted by the Company are set out below.

Number of share options

Category of participant

Outstanding at the Latest

Practicable Date

Approximate % of issued

share capital

Date of grant of share options

Exercise price

per share Notes

HK$

DirectorsMr. Wang, John Peter Ben 590,000 0.09% 26 August 2011 0.75 2

Mr. Tsui Yiu Wa, Alec 590,000 0.09% 26 August 2011 0.75 2

Mr. Pang Hing Chung, Alfred 590,000 0.09% 26 August 2011 0.75 2

Dr. Tyen Kan Hee, Anthony 390,000 0.06% 26 August 2011 0.75 2

2,160,000 0.33%

Notes:

1. As at the Latest Practicable Date, the total number of issued shares of the Company was

624,082,918.

2. The share options can be exercised in two instalments, 50% of which at any time between

26 August 2011 to 25 August 2021 and the remaining 50% at any time between 26 August

2012 to 25 August 2021.

On 10 July 2013, the Board has resolved to grant 20,000,000 share options (representing

approximately 3.20% of the issued shares of the Company) at an exercise price of HK$3.46 per

Share to Mr. Lawrence Ho under the Share Option Scheme in connection with his appointment as a

non-executive Director and Chairman of the Board. The grant of options is conditional on approval

by the Shareholders at the SGM, at which all connected persons of the Company must abstain from

voting in favor of the grant.

Save as disclosed above, as at the Latest Practicable Date, none of the directors and chief

executive of the Company and their respective associates had any interests or short position in

any shares or underlying shares or interests in debentures of the Company or any of its associated

corporations (within the meaning of Part XV of the SFO) which were required to be notified to the

Company and the Stock Exchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including

interests or short positions which they were taken or deemed to have under such provisions of the

SFO), or which were required, pursuant to Section 352 of the SFO, to be entered in the register

referred to therein, or which were required, pursuant to the Model Code, to be notified to the

Company and the Stock Exchange.


VI – 3

(b) Interests and short position of Shareholders (of which a Director or a proposed

Director is a director or employee) in the Shares, underlying Shares and

debentures of the Company

As at the Latest Practicable Date, the interests and short position of a company (of

which a Director or a proposed Director is a director or employee ) in the Shares, underlying

Shares or debentures of the Company which would fall to be disclosed to the Company and

the Stock Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO, were

as follows:

Name of Director

Name of

Shareholder

Capacity of

Director in

Shareholder

Number of

ordinary

shares held

Approximate

% of issued

share capital

Mr. Lawrence Ho Quick Glitter Limited Director and

shareholder

229,586,232 36.83%

Save as disclosed above, as at the Latest Practicable Date, none of the Directors or a

proposed Director was a director or employee of a company which had, or was deemed to

have, an interest or short position in the Shares or underlying Shares which would fall to be

disclosed to the Company and the Stock Exchange under the provisions of Divisions 2 and 3

of Part XV of the SFO.

3. DIRECTORS’ SERVICE CONTRACTS

As at the Latest Practicable Date, none of the Directors had entered, or was proposing to

enter, into any service contract with any member of the Group which is not expiring or may not be

terminated by the any member of the Group within a year without payment of any compensation

(other than statutory compensation).

4. LITIGATION

As at the Latest Practicable Date, no litigation or claim of material importance was known to

the Directors to be pending or threatened against any member of the Group.

5. COMPETING INTERESTS

As at the Latest Practicable Date, none of the Directors or their respective associates (as

if each of them were treated as a controlling shareholder of the Company under Rule 8.10 of the

Listing Rules) had any competing interests in any business, which competes or may compete, either

directly or indirectly with the businesses of the Company pursuant to the Listing Rules.


VI – 4

6. MATERIAL INTERESTS IN CONTRACT OR ARRANGEMENT

None of the Directors or a proposed director was materially interested in any contracts or

arrangement entered into by any member of the Group which is subsisting at the Latest Practicable

Date and which is significant in relation to the business of the Group.

As at the Latest Practicable Date, none of the Directors or a proposed director had any direct

or indirect interest in any assets which had been, since 31 December 2012, being the date to which

the latest published audited financial statements of the Group were made up, acquired or disposed

of by, or leased to any member of the Group, or were proposed to be acquired or disposed of by or

leased to any member of the Group.

7. EXPERTS

The following are the qualifications of the experts (the “Experts”) who have given their

opinion, letter or advice contained in this circular or whose name is otherwise referred to in this

circular:

Name Qualification


(“Deloitte”)

Certified public accountants

Odysseus Independent financial adviser, a licensed corporation to

carry out Type 6 (advising on corporate finance) regulated

activity under the SFO

American Appraisal China

Limited

Independent property valuer

CMS International B.V. Russian legal adviser

As at the Latest Practicable Date, each of the Experts expressed that it did not have any

shareholding, directly or indirectly, in any member of the Group or any right (whether legally

enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any

member of the Group.

Each of the Experts has given and has not withdrawn its written consent to the issue of this

circular, with the inclusion therein of its letter and/or report or the references to its name in the

form and context in which it appears.


VI – 5

As at the Latest Practicable Date, each of the Experts did not have any direct or indirect

interest in any asset which had been acquired, or disposed of by, or leased to any member of the

Group, or were proposed to be acquired, or disposed of by, or leased to any member of the Group

since 31 December 2012, being the date to which the latest published audited financial statements

of the Group were made up.

8. MATERIAL CONTRACTS

As at the Latest Practicable Date, the following contracts (not being contracts entered into in

the ordinary course of business) were entered into by members of the Group within the two years

immediately preceding the Latest Practicable Date and are, or may be considered, material:

(a) the Investment Agreement;

(b) the Amended and Restated Preliminary Agreement;

(c) the Preliminary Agreement; and

(d) the underwriting agreement dated 28 February 2013 entered into between the

Company and Luen Fat Securities Company Limited as underwriter in relation to

the open offer of not less than 71,381,875 but not more than 72,521,875 new Shares

completed by the Company in April 2013.

9. GENERAL

(a) The company secretary of the Company is Mr. Tsang Yuen Wai, Samuel. Mr. Tsang is

a solicitor admitted in Hong Kong, England and Australia. Mr. Tsang has worked as a

lawyer with major law firms and listed conglomerates in Hong Kong for over 20 years.

He holds a master of laws degree from University of Hong Kong and a master of

business administration degree from the Australian Graduate School of Management.

(b) The Hong Kong branch share registrar and transfer office of the Company is

Computershare Hong Kong Investor Services Limited with its office located at Shops

1712–1716, 17th Floor, Hopewell Center, 183 Queen’s Road East, Wanchai, Hong

Kong.

(c) In case of inconsistency, the English text of this circular shall prevail over the Chinese

text of the same.


VI – 6

10. DOCUMENTS AVAILABLE FOR INSPECTION

Copies of the following documents will be available for inspection during business hours

at the head office of the Company in Hong Kong at Room 3701, 37th Floor, The Centrium, 60

Wyndham Street, Hong Kong, from the date of this circular and up to and including the date of the

SGM:

(a) the memorandum of association and bye-laws or its equivalent of the Company;

(b) the letter of advice from Odysseus to the Independent Board Committee and the

Independent Shareholders, the text of which is set out on pages 61 to 83 of this

circular;

(c) the published annual reports of the Company for the two years ended 31 December

2011 and 2012;

(d) the accountants’ reports on the Target Group prepared by Deloitte, the texts of which

are set out in Appendices IIA and IIB to this circular;

(e) the letter from Deloitte in connection with the unaudited pro forma financial

information of the Enlarged Group, the text of which is set out in Appendix IV to this

circular;

(f) the property valuation report of the Target Group, the text of which is set out in

Appendix V to this circular;

(g) the written consents referred to under the paragraph headed “Experts” in this

Appendix VI;

(h) copies of each of the material contracts referred to under the paragraph headed

“Material contracts” in this Appendix VI; and

(i) this circular.

NOTICE OF SGM

SGM – 1



(Stock Code: 102)

NOTICE OF SPECIAL GENERAL MEETING

NOTICE IS HEREBY GIVEN that a special general meeting (“SGM”) of Summit Ascent

Holdings Limited (the “Company”) will be held at 38th Floor, The Centrium, 60 Wyndham Street,

Central, Hong Kong on Thursday, 17 October 2013 at 11:00 a.m. for the purpose of considering

and, if thought fit, passing, with or without modification, the following resolutions as ordinary

resolutions of the Company (capitalized terms used but not defined herein shall have the same

meanings as ascribed to them in the circular of the Company dated 30 September 2013 (the

“Circular”)):

ORDINARY RESOLUTIONS

1. “THAT:

(a) the subscription for shares representing a 46% interest in Oriental Regent

Limited (“Oriental Regent”) by Summit Ascent Russia Limited (“SARL”), a

wholly-owned subsidiary of the Company, pursuant to the terms and conditions

of the investment and shareholders’ agreement dated 23 August 2013 entered

into between (1) SARL, (2) New Crescent Investments Limited, (3) Firich

Investment Limited, (4) Elegant City Group Limited, and (5) Oriental Regent

(the “Investment Agreement”) be and is hereby approved;

(b) the entry into of the Investment Agreement by SARL and the performance of its

obligations under the Investment Agreement be and are hereby approved; and

(c) any executive director of the Company be and is hereby authorised to arrange

for the execution of such documents in such manner as he may consider

necessary or desirable and to do, or authorize the Company and/or any

subsidiary(ies) (including, without limitation, SARL) to do, whatever acts and

things he may consider necessary or desirable or expedient for the purpose of,

or in connection with, the implementation of the transactions contemplated

by the Investment Agreement and/or any matter related thereto, to ratify any

documents executed, or action taken, in relation to the Investment Agreement,

NOTICE OF SGM

SGM – 2

and to make or agree, or authorize the Company and/or any subsidiary(ies)

(including, without limitation, SARL) to make or agree, such amendments

or variations thereto, and to grant, or authorize the Company and/or any

subsidiary(ies) (including, without limitation, SARL) to grant, any waivers

of any conditions precedent or other provisions of such documents as any

executive director of the Company in his discretion considers to be desirable

and in the interests of the Company and/or any subsidiary(ies) (including,

without limitation, SARL).”

2. “THAT:

(a) the directors of the Company be and are hereby authorised to grant to Mr. Ho,

Lawrence Yau Lung share options to subscribe for 20,000,000 shares of the

Company at an exercise price of HK$3.46 per share (the “Options”) under the

Share Option Scheme of the Company adopted on 7 July 2011 on the terms

described in the Circular; and

(b) any one director of the Company be and is hereby authorised to do any act or

thing and to sign, seal, execute and/or deliver any document for and on behalf

of the Company as may be necessary, desirable or expedient in connection with

the grant of the Options to Mr. Ho, Lawrence Yau Lung.”

By Order of the Board of


Tsang Yuen Wai, Samuel

Company Secretary

Hong Kong, 30 September 2013

Head office in Hong Kong:

Room 3701, 37th Floor

The Centrium

60 Wyndham Street

Hong Kong

Principal place of business in Hong Kong:

6th Floor

Victoria Centre

15 Watson Road

Hong Kong

NOTICE OF SGM

SGM – 3

Notes:

(1) Any member entitled to attend and vote at the SGM is entitled to appoint another person as his/her/its proxy to

attend and vote instead of him/her/it. A member who is the holder of two or more shares of the Company may

appoint one or more proxies to attend and vote instead of him/her/it. A proxy need not be a member of the Company.

(2) A form of proxy for use at the meeting is enclosed.

(3) The form of proxy must be signed by the member or the member’s attorney duly authorised in writing or, in the case

of a member which is a corporation, must be under its seal or the hand of an officer or attorney duly authorised.

(4) The form of proxy and the power of attorney or other authority, if any, under which it is signed or a notarially

certified copy thereof must be lodged at the branch share registrar of the Company in Hong Kong, Computershare

Hong Kong Investor Services Limited at 17M Floor, Hopewell Centre, 183 Queen’s Road East, Wanchai, Hong

Kong, not later than 48 hours before the time appointed for holding the SGM or any adjourned meeting (as the case

may be) and in default the proxy shall not be treated as valid. Completion and return of the form of proxy shall not

preclude members from attending and voting in person at the SGM or at any adjourned meeting (as the case may be)

should they so wish.

(5) Where there are joint registered holders of any share(s), any one of such persons may vote at any meeting, either in

person or by proxy, in respect of such share(s) as if he/she/it was solely entitled thereto; but if more than one of such

joint holders be present at the meeting personally or by proxy, the vote of that one of the said persons so present

whose name stands first on the register of members in respect of such share(s) shall be accepted to the exclusion of

the votes of the other joint holders.

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