Sunwah International Limited Settles Debt of CAN$7.66 Million With Shares in Sunwah Kingsway Capital Holdings Limited

Sunwah International Limited, (TSX: SWH) (the “Company”), an Asian based financial services firm, announces that it has entered into two debt settlement agreements pursuant to which the Company will transfer shares in Sunwah Kingsway Capital Holdings Limited (“Sunwah Kingsway”) with a value equal to approximately CAN$7,655,542 in settlement of the Company’s outstanding 8% debentures and its revolving loan facility.  Sunwah Kingsway is a company listed on the Main Board of The Stock Exchange of Hong Kong (the “HKEx”).

The Company’s wholly-owned subsidiary, Sunwah International Financial Services Limited (“Sunwah Financial”), as borrower, obtained an unsecured revolving loan (the “Loan”) for up to HK$12,000,000 bearing interest of 12% per annum, payable monthly.  The Loan was provided by Sunford Finance (H.K.) Limited, a company controlled by  family members of Dr. Jonathan Choi, a controlling shareholder and a director of the Company.  The current balance drawn on the Loan is HK$8,000,000 (approximately CAN$1,355,542) and monthly accrued interest has been paid to current.  The Loan matures on September 30, 2018 and Sunford has indicated that it does not intend to extend the maturity date.  The Company and Sunwah Financial have agreed with Sunford to settle the Loan by transferring to Sunford 76,923,076 shares of Sunwah Kingsway at a price of CAN $0.0176 per share (HK$0.104 per share and based on an exchange rate of HK$5.9017:CAN$1) in full satisfaction of the Loan principal, with any accrued interest to the date of payment to be paid in cash.

Sun Wah Capital Limited (a company owned or controlled by Dr. Jonathan Choi, who is a controlling shareholder and a director of the Company) and Ideal Performance Limited (a company owned or controlled by Mr. Michael Choi, who is a joint actor of Dr. Jonathan Choi and a director of the Company) respectively hold CAN$4,500,000 and CAN$1,500,000 in principal amount of 8% unsecured debentures of the Company due September 19, 2018 (the “Debentures”).

Dr. Jonathan Choi and Mr. Michael Choi (together, the “Debenture Holders”) and the Company have agreed to settle all amounts owing in respect of the Debentures (in which the aggregate of the principal, accrued interest as of June 30, 2018 and 1% arrangement fee total CAN$6,300,000) by transferring to the Debenture Holders, respectively, 268,130,120 and 89,376,706 shares of Sunwah Kingsway at a price of CAN$0.0176 per share (HK$0.104 per share and based on an exchange rate of HK$5.9017:CAN$1) with the remaining accrued interest of the Debentures from July 1, 2018 to the closing date shall be settled in cash on closing date.  On settlement of the Loan and the Debentures with the Company’s Sunwah Kingsway shares, it is expected that the Company’s equity interest in Sunwah Kingsway will decrease from approximately 35% to approximately 28%.

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A special committee comprised of the independent members of the Board of Directors of the Company, namely Dr. Lee Lam, Ms. Elizabeth Law and Mr. Robert Fung, (the “Special Committee”) considered the proposed terms and conditions for the settlement of the Loan and Debentures, as well as possible alternatives available to the Company, including the ability to obtain alternative lenders on acceptable terms, and other financing options.  During the course of its deliberations and in arriving at its recommendations, the Special Committee considered and discussed numerous factors in connection with the proposed transaction.  These factors included information with respect to the business, financial condition including the current liquidity ratio, property, assets, operations and plans of the Company, current capital market conditions and the impact to the Company of the reduction in the Company’s holdings in Sunwah Kingsway.  As part of its deliberations, the Special Committee also considered the value to be ascribed to the Sunwah Kingsway shares.  In its deliberations, the Special Committee took notice of the fact that the Sunwah Kingsway shares trade daily in significant volumes on the HKEx and that a recent Sunwah Kingsway open offer was completed at a price consistent with the current prevailing market price of Sunwah Kingsway shares on the HKEx (yet it was still under subscribed by its existing shareholders).  These factors, as well as other considerations of the Special Committee, resulted in it determining that the fair market value of the Sunwah Kingsway shares may be appropriately based on the current trading prices of such shares.  Initially, it was proposed that the price of Sunwah Kingsway shares be the closing price on the day of the debts settlement agreements but it was resolved to be the higher of the 30 and 60 days volume weighted average price (“VWAP”) per share of Sunwah Kingsway as traded on the HKEx from the close of business of the execution of the debts settlement agreements, the closing VWAP per share of Sunwah Kingsway on the date of the execution of the debts settlement agreements and the price of the recent Sunwah Kingsway open offer of HK$0.103.

After completing its deliberations, the Special Committee concluded that completion of the debt settlement transactions were in the best interests of the Company and recommended that the Company’s Board of Directors approve the settlement transactions. The Company’s Board of Directors, with Dr. Jonathan Choi and Mr. Michael Choi abstained from voting, considered the settlement transactions and approved them.

The settlement of the Loan and the Debentures constitutes a “related party transaction” within the meaning of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”).  MI 61-101 requires that unless exempted, a corporation proposing to carry out a related party transaction is required to obtain an independent formal valuation and minority shareholder approval, as such are defined in MI 61-101.  The Company is relying on the exemption from the formal valuation requirement as set out in Section 5.5(a) of MI 61-101 and on the exemption from the minority shareholder approval requirement as set out in Section 5.7(1)(a) of MI 61-101 as neither the fair market value of the total Loan and Debenture settlement amounts nor the fair market value of the total Sunwah Kingsway shares to be transferred, in each case being approximately CAN$7,655,542, exceeds 25% of the Company’s market capitalization as determined in accordance with the requirements of MI 61-101.  The Company’s total market capitalization as at May 31, 2018, determined in accordance with the requirements of MI 61-101, was CAN$34,554,913 and 25% of its market capitalization is CAN$8,638,728.

It is currently anticipated that the settlement of the Loan and the Debentures will be completed concurrently on July 13, 2018.

The Company will send a copy of the material change report in respect of the settlement transactions to any security holder of the Company upon request and without charge.

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