FTO.L Regulatory News (FTO)

9 September 2013

Fortune Oil PLC

("Fortune Oil" or the "Company")

Posting of Circular and Notice of General Meeting

Further to the announcement made by the Company on 7 August 2013 regarding the Proposed Acquisition, Loan Settlement, Rule 9 Waiver and Special Dividend (together, the "Proposals"), Fortune Oil is pleased to announce that it has today dispatched a circular to shareholders (the "Circular") containing details of the Proposals. The Circular also gives notice of a general meeting (the "General Meeting") to approve the Proposals, which will be held at 11:00 a.m. on 25 September 2013 at the offices of Reed Smith LLP, The Broadgate Tower, 20 Primrose Street, London EC2A 2RS.

In accordance with Listing Rule 9.6.1, the Company has today submitted the Circular (incorporating the Notice of General Meeting) and the related Notice of Availability and Form of Proxy to the National Storage Mechanism (which has replaced the United Kingdom Listing Authority's Document Viewing Facility) and these documents will shortly be available for inspection at www.hemscott.com/nsm/do.

A copy of the Circular will be available today for viewing on the Company's website www.fortune-oil.com by accessing the 'Shareholder Voting' section of 'OUR COMPANY'.

Copies of the Circular will also be available from the Company's registered office at 6/F., Belgrave House, 76 Buckingham Palace Road, London SW1W 9TQ.

Unless otherwise defined in this announcement, capitalised terms in this announcement shall have the same meaning as in the announcement regarding the Proposals made by the Company on 7 August 2013.

The Proposed Acquisition

First Level Holdings Limited and Vitol Energy (Bermuda) Limited have formed a joint venture vehicle, FDH, which is governed by a shareholders' agreement and controlled by First Level Holdings Limited, which in turn is controlled by Daniel Chiu, a director of the Company.

First Marvel, a wholly-owned subsidiary of FDH, agreed to acquire all the rights and benefits of Wilmar under the Fortune Gas Sale Agreement (including but not limited to: (i) proceeds of US$30,000,000 in cash received by Wilmar under Clause 3.1(a) of the Fortune Gas Sale Agreement; and (ii) the right of Wilmar to receive an additional US$30,000,000 pursuant to Clause 3.1(b) of the Fortune Gas Sale Agreement) from Wilmar for US$60,000,000 in cash pursuant to a sale and purchase agreement between Wilmar and First Marvel and a deed of assignment and novation agreement between the parties to the Fortune Gas Sale Agreement and First Marvel.

FDH entered into the SPA to sell the entire issued share capital of First Marvel to Fortune Oil in consideration for the issuance of 500,266,580 new Ordinary Shares (the "Consideration Shares") to FDH.

The Proposed Acquisition is conditional on the passing of the resolutions to be proposed at the General Meeting (the "Resolutions") and admission of the Consideration Shares and the Loan Shares (as defined below) to the Official List of the United Kingdom's Financial Conduct Authority and to trading on the London Stock Exchange's Main Market for Listed Securities ("Admission").

The Loan Settlement

FDH has also loaned US$12,000,000 to the Fortune Oil group by subscribing for the Loan Notes under the Loan Instrument.

The Loan Notes have a maturity date of 7 February 2014. Interest is payable on the Loan Notes at a rate of 7 per cent. per annum (with an additional 2 per cent. in respect of default interest), such interest accruing daily and calculated on the basis of a 365-day year. The Company and FDH propose, subject to the passing of Resolution 1 at the General Meeting, to modify the Loan Instrument to provide that substantially all of the Loan Notes be settled by way of the issue of 99,373,000 new Ordinary Shares (the "Loan Shares"), with the balance of approximately US$185,000 of principal and all accrued interest paid in cash, pursuant to the terms of the modified Loan Instrument.

The Rule 9 Waiver

As at the date of this announcement, Daniel Chiu, Dennis Chiu, Louisa Ho, Li Ching, First Level Holdings Limited, Vitol Energy (Bermuda) Limited and Fortune Dynasty Holdings, who together are deemed to be acting in concert for the purposes of the Takeover Code (the "Concert Party"), in aggregate hold 45.1 per cent. of the entire issued share capital of the Company.

Pursuant to the Proposed Acquisition and the settlement of the Loan Notes in accordance with the terms of the modified Loan Instrument, the Concert Party will together receive, directly and indirectly, the Consideration Shares and the Loan Shares and their aggregate direct and indirect holding immediately following Admission will be 1,496,037,077 Ordinary Shares, representing approximately 57.8 per cent. of the enlarged issued share capital of the Company immediately following Admission (the "Enlarged Issued Share Capital").

Accordingly, due to the increase in the holding of the Concert Party as a result of the issuance of the Consideration Shares and the Loan Shares, in order not to trigger an obligation under Rule 9 of the Takeover Code, the independent shareholders are being asked, at the General Meeting, to waive the obligation on the Concert Party to make a mandatory offer under Rule 9 of the Takeover Code, which would otherwise arise as a result of the issuance of the Consideration Shares and the Loan Shares to members of the Concert Party.

The Special Dividend

Subject to the passing of the Resolutions at the General Meeting, the Company will pay, following Admission and at a date to be determined, the Special Dividend of 2.36 pence on each Ordinary Share to shareholders of Fortune Oil. FDH has agreed to waive any rights it may have to receive the Special Dividend.

Reasons for the Proposals

As a result of a delay for longer than expected in completion of the Fortune Gas Sale Agreement, Fortune Oil has had to continue to fund the working capital needs of FGIH, including certain material near term capital expenditure necessary to progress FGIH with a view to achieving the minimum profits guaranteed by Fortune under the Fortune Gas Sale Agreement. The proceeds from the issue of the Loan Notes have provided the funding for these and other items of near term capital expenditure as well as additional working capital for the Company. If Fortune Oil were to fail to maintain the performance of FGIH through appropriate capital investment, this would negatively impact the performance of FGIH and, ultimately, the consideration receivable from China Gas under the terms of the Fortune Gas Sale Agreement. This would not be in the best interests of shareholders of Fortune Oil. Settlement of substantially all of the Loan Notes by way of the issue of the Loan Shares is being proposed as an integral part of the proposals made by the Concert Party described in this announcement.

In early 2012, Fortune Oil, together with Liu Ming Hui, established a 50/50 joint venture, CGGL, to invest in China Gas. CGGL currently holds approximately 14.66 per cent. of the entire issued share capital of China Gas. In his personal capacity, Liu Ming Hui holds approximately 6.45 per cent. of the entire issued share capital of China Gas, meaning that Fortune Oil and Liu Ming Hui, who are considered to be a concert party for purposes of the Hong Kong Takeovers Code, are collectively interested in approximately 21.11 per cent. of the entire issued share capital of China Gas. Fortune Oil's relationship with China Gas has provided and is expected to continue to provide significant benefits to the Company. Subject to various considerations, including market conditions, the Company expects that it will elect to receive the second part of the consideration due to it under the Fortune Gas Sale Agreement (US$170,000,000) in shares in China Gas rather than cash, thus adding to its significant shareholding in China Gas. Completion of the SPA would enable the Company to increase its interests in China Gas further still by acquiring the US$30,000,000 in shares in China Gas which Wilmar would otherwise be entitled to receive under the Fortune Gas Sale Agreement.

The Proposed Acquisition and the Loan Settlement and the issuance of the Consideration Shares and the Loan Shares, under the terms of the modified Loan Instrument, demonstrate both the continued support of Daniel Chiu and Vitol Energy (Bermuda) Limited, who were involved in the creation of the Company and have been key to its development for over 20 years, and their confidence in the future of the Company.

The Independent Directors are willing to allow the Concert Party to acquire interests in Ordinary Shares that would take the Concert Party, in aggregate, to over a 50 per cent. holding in the Enlarged Issued Share Capital, as they believe this will be beneficial to shareholders of Fortune Oil as a whole. Certain members of the Concert Party have been unable to acquire Ordinary Shares when there have been sellers in the market for such shares without triggering a Rule 9 offer under the Takeover Code and this has exerted downward pressure on Fortune Oil's share price. Consequently, in recent years, Fortune Oil's share price has not responded as the directors of the Company might have expected, despite the Company's positive financial and operational track record.

If Resolution 1 is passed at the General Meeting, following the issue of the Consideration Shares and the Loan Shares in connection with the Proposed Acquisition and the Loan Settlement, respectively, the Concert Party will hold approximately 57.8 per cent. of the Enlarged Issued Share Capital and consequently will have the ability to increase its aggregate interest in the issued share capital of the Company without having to make a Rule 9 offer for the Company under the Takeover Code. In addition, Daniel Chiu and First Level Holdings Limited will control a holding of approximately 51.2 per cent. of the Enlarged Issued Share Capital and each will be free to increase their interests in Ordinary Shares without incurring an obligation to make a Rule 9 offer under the Takeover Code. Other members of the Concert Party will individually continue to be subject to obligations under Rule 9 of the Takeover Code unless the Panel consents to waive those obligations in accordance with Note 4 to Rule 9.1 of the Takeover Code.

While the issuance of the Consideration Shares and the Loan Shares will reduce the free-float percentage in the Ordinary Shares, it is expected that the Proposals will provide additional sources of demand for and improve the marketability of the Ordinary Shares.

Completion of the Proposed Acquisition and the Loan Settlement will significantly strengthen the balance sheet of the Company and will allow the Company to pay the Special Dividend, which should be attractive to Shareholders and reward them for their loyal support of the Company.

The Resolutions

Resolution 1 relates to the Rule 9 Waiver and will be proposed as an ordinary resolution which will be taken on a poll of the independent shareholders as required by the Takeover Code. Ordinary Shares held in the Company's employee benefit trust shall not be entitled to vote on Resolution 1. The purpose of Resolution 1 is to approve the Rule 9 Waiver whereby the independent shareholders will approve the Panel waiver of the Concert Party's obligations under Rule 9 of the Takeover Code to make a general offer to all remaining shareholders of Fortune Oil to acquire their Ordinary Shares as a consequence of the issuance to FDH of the Consideration Shares under the terms of the Proposed Acquisition and the Loan Shares under the terms of the modified Loan Instrument. No member of the Concert Party is permitted to exercise its voting rights in relation to Resolution 1 but may exercise its voting rights in respect of Resolution 2 and Resolution 3. If Resolution 1 is passed by the independent shareholders at the General Meeting the Loan Instrument will be amended and modified by FDH and the Company to permit (and allow FDH to require) settlement of substantially all of the Loan Notes by the Company by way of the issue of the Loan Shares pursuant to the terms of the modified Loan Instrument.

Resolution 2, which will be proposed as an ordinary resolution and be subject to the passing of Resolution 1, is a resolution to approve the purchase by the Company of the entire issued share capital of First Marvel from FDH, being a connected person of Daniel Chiu, a director of the Company, by virtue of Daniel Chiu's control of First Level Holdings Limited, which owns 55 per cent. of the issued share capital of FDH (the "Section 190 Approval"). Under section 190 of the United Kingdom Companies Act 2006, the Company may not enter into an arrangement under which the Company acquires or is to acquire or disposes of or is to dispose of a substantial non-cash asset (directly or indirectly) from or to a director of the Company or a person so connected.

Resolution 3, which will be proposed as an ordinary resolution and be subject to the passing of Resolutions 1 and 2, is a resolution to approve the payment of the Special Dividend following Admission.

Recommendation

The Independent Directors, being Qian Benyuan, Tee Kiam Poon, Frank Attwood, Zhi Yulin, Mao Tong and Lin Xizhong, who have been so advised by VSA Capital Limited, consider the Proposed Acquisition, the Loan Settlement and the consequent issuance of the Consideration Shares and the Loan Shares, to be fair and reasonable and in the best interests of the Company and the independent shareholders as a whole and unanimously recommend shareholders of Fortune Oil to vote in favour of Resolution 1.

The directors consider the Section 190 Approval and the Special Dividend to be in the best interests of the Company and its shareholders as a whole and unanimously recommend the shareholders of Fortune Oil to vote in favour of Resolutions 2 and 3.

Background on Fortune Oil

Fortune Oil is a leading independent energy company engaged in the investment in and operation of oil and natural gas supply projects in the People's Republic of China (the "PRC"). Fortune Oil has acquired a unique portfolio of high quality oil and natural gas projects across the country and has formed a strong partnership with domestic and international market leaders. Fortune Oil recently started an expansion outside the PRC securing resource projects. Fortune Oil is listed on the Main Market of the London Stock Exchange with its operational headquarters in Hong Kong.