CT in Relation to Entrusted Loan Framework Agre...
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THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
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If you are in any doubt as to any aspect of this circular or as to the
action to be taken, you should consult a licensed securities dealer,
bank manager, solicitor, professional accountant or other professional
adviser.
If you have sold or transferred all your shares in DATANG INTERNATIONAL
POWER GENERATION CO., LTD., you should at once hand this circular to
the purchaser or transferee or to the bank, licensed securities dealer
or other agent through whom the sale or transfer was effected for
transmission to the purchaser or 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
disclaims any liability whatsoever for any loss howsoever arising from
or in reliance upon the whole or any part of the contents of this
circular.
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DATANG INTERNATIONAL POWER GENERATION CO., LTD.
(a sino-foreign joint stock limited company incorporated in the
People's Republic of China)
(Stock Code: 00991)
CONNECTED TRANSACTION
IN RELATION TO
ENTRUSTED LOAN FRAMEWORK AGREEMENT
Independent Financial Adviser to the Independent Board Committee
and the Independent Shareholders
Mizuho Securities Asia Limited
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A letter from the Board is set out on pages 4 to 9 of this circular. A
letter from the Independent Board Committee is set out on pages 10 to 11
of this circular. A letter from Mizuho Securities containing its advice
to the Independent Board Committee and the Independent Shareholders is
set out on pages 12 to 19 of this circular.
The Company will convene the EGM at the meeting room 5/F,
InterContinental Hotel, No. 11 Financial Street, Xicheng District,
Beijing, the PRC on 20 August 2012 (Monday) at 9:00 a.m. The notice
convening the EGM has been dispatched to the Shareholders on 5 July
2012.
Completion and return of the proxy form shall not preclude you from
attending and voting in person at the EGM or at any adjourned meetings
should you so wish.
25 July 2012
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CONTENTS
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DEFINITIONS
LETTER FROM THE BOARD
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
LETTER FROM MIZUHO SECURITIES
APPENDIX - GENERAL INFORMATION
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DEFINITIONS
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In this circular, unless the context otherwise requires, the following
expressions have the following meanings:
"A Share(s)" the domestic ordinary share(s) of the Company
with a nominal value of RMB1.00 each and are
listed on the Shanghai Stock Exchange
"Associate(s)" has the meaning ascribed to it under the
Listing Rules
"Board" the board of Directors of the Company
"CDC" China Datang Corporation, a state-owned
enterprise established under the laws of the
PRC and is the controlling Shareholder of the
Company pursuant to the Listing Rules which,
together with its subsidiaries, own
approximately 34.71% of the issued share
capital of the Company as at the Latest
Practicable Date
"Company" Datang International Power Generation Co.,
Ltd., a sino-foreign joint stock limited
company incorporated in the PRC on 13
December 1994, whose H Shares are listed on
the Stock Exchange and the London Stock
Exchange and whose A Shares are listed on the
Shanghai Stock Exchange
"Connected person" has the meaning ascribed to it under the
Listing Rules
"Connected transaction" has the meaning ascribed to it under the
Listing Rules
"Datang Finance Company" Datang Corporation Finance Limited Company, a
subsidiary of CDC, whose principal business
includes, among others, the provision of
deposit services, loan services, entrusted
loan services and entrusted investment
services
"Directors" the director(s) of the Company
"Duolun Coal Chemical Datang Inner Mongolia Duolun Coal Chemical
Company" Company Limited, which constructs and
operates the Duolun Coal Chemical Project
"Duolun Coal Chemical the project located in Duolun County in the
Project" Inner Mongolia Autonomous Region which uses
the brown coal from the East Unit 2 coal mine
of Shengli Coal Mine as raw materials for the
production of polypropylene chemical products
by employing the pulverised coal gasification
technology, the synthetic gas purification
technology, large-scale methanol synthesis
technology, the methanol-to-propylene
technology and the propylene polymerisation
technology
"EGM" the extraordinary general meeting of the
Company to be held at the meeting room on
5/F, InterContinental Hotel, No. 11 Financial
Street, Xicheng District, Beijing, the PRC on
20 August 2012 (Monday) at 9:00 a.m. to
consider and approve, among others, the
Entrusted Loan Framework Arrangement and the
Entrusted Loan Framework Agreement
"Energy and Chemical Datang Energy and Chemical Company Limited, a
Company" wholly-owned subsidiary of the Company,
principally engaged in the production and
sales businesses for the products including
coal-alkene, coal-natural gas and extraction
of alumina from pulverized fuel ash
"Entrusted Loan" the entrusted loan of a total principal
amount of not exceeding RMB2 billion
"Entrusted Loan the entrusted loan framework agreement
Framework Agreement" entered into on 5 July 2012 between the
Company, Energy and Chemical Company, Datang
Finance Company and Duolun Coal Chemical
Company in respect of the Entrusted Loan
Framework Arrangement
"Entrusted Loan the arrangement where Datang Finance Company
Framework Arrangement" is entrusted by the Company or Energy and
Chemical Company to act as a lending agent
to, inter alia, release the Entrusted Loan in
various tranches to Duolun Coal Chemical
Company pursuant to the Entrusted Loan
Framework Agreement
"Financial Services the financial services agreement dated
Agreement" 26 October 2010 entered into between the
Company and Datang Finance Company, details
of which please refer to the circular of the
Company dated 16 November 2010
"Group" the Company and its subsidiaries
"H Share(s)" the overseas listed foreign shares of the
Company with a nominal value of RMB1.00 each,
which are listed on the Stock Exchange and
the London Stock Exchange
"Hong Kong" the Hong Kong Special Administrative Region
of the PRC
"Independent Board the independent board committee of the
Committee" Company, comprising five independent
non-executive Directors, and each of them
does not have any material interest in the
Entrusted Loan Framework Agreement
"Independent has the meaning ascribed to it under the
Shareholders" Listing Rules
"Latest Practicable 20 July 2012, being the latest practicable
Date" date prior to the printing of this circular
for ascertaining certain information in this
circular
"Listing Rules" the Rules Governing the Listing of Securities
on the Stock Exchange
"Mizuho Securities" Mizuho Securities Asia Limited, the
independent financial adviser to the
Independent Board Committee and the
Independent Shareholders in respect of the
terms of the Entrusted Loan Framework
Agreement, and a licensed corporation for
types 1 (dealing in securities), 2 (dealing
in futures contracts), 4 (advising on
securities), 5 (advising on futures
contracts), 6 (advising on corporate finance)
and 9 (asset management) regulated activities
under the SFO
"PRC" the People's Republic of China
"RMB" Renminbi, the lawful currency of the PRC
"SFO" the Securities and Futures Ordinance (Chapter
571 of the Laws of Hong Kong)
"Shareholder(s)" the holder(s) of the Share(s)
"Shares" the ordinary shares of the Company with a
nominal value of RMB1.00 each, comprising
domestic Shares and H Shares
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"%" percent
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LETTER FROM THE BOARD
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DATANG INTERNATIONAL POWER GENERATION CO., LTD.
(a sino-foreign joint stock limited company incorporated in the
People's Republic of China)
(Stock Code: 00991)
Executive Directors: Office address:
Mr. Cao Jingshan No.9 Guangningbo Street
Mr. Zhou Gang Xicheng District
Beijing, 100033
Non-executive Directors: the PRC
Mr. Liu Shunda (Chairman)
Mr. Hu Shengmu Principal place of business
Mr. Fang Qinghai in Hong Kong:
Mr. Liu Haixia c/o Stephen Mok & Co.
Ms. Guan Tiangang 21/F, Gloucester Tower
Mr. Su Tiegang The Landmark
Mr. Ye Yonghui 15 Queen's Road Central
Mr. Li Gengsheng Hong Kong
Independent non-executive Directors:
Mr. Li Yanmeng
Mr. Zhao Zunlian
Mr. Li Hengyuan
Ms. Zhao Jie
Mr. Jiang Guohua
25 July 2012
To the Shareholders
Dear Sir or Madam,
CONNECTED TRANSACTION
IN RELATION TO
ENTRUSTED LOAN FRAMEWORK AGREEMENT
BACKGROUND
On 2 July 2012, the twenty-sixth meeting of the seventh session of
the Board considered and approved the provision of the Entrusted Loan
of not more than RMB2 billion to Duolun Coal Chemical Company. On 5
July 2012, the Company entered into the Entrusted Loan Framework
Agreement with Energy and Chemical Company, Datang Finance Company and
Duolun Coal Chemical Company in relation to the provision of the
Entrusted Loan by the Company or Energy and Chemical Company to Duolun
Coal Chemical Company pursuant to the Entrusted Loan Framework
Arrangement, in which Datang Finance Company acts as a lending agent.
The purpose of this circular is:
(1) to provide you with further details of the Entrusted Loan
Framework Agreement;
(2) to set out the recommendation of the Independent Board
Committee in respect of the Entrusted Loan Framework
Agreement; and
(3) to set out the letter of advice from Mizuho Securities to the
Independent Board Committee and the Independent Shareholders
in respect of the Entrusted Loan Framework Agreement.
ENTRUSTED LOAN FRAMEWORK AGREEMENT
Date and Subject Matter
On 5 July 2012, the Company entered into the Entrusted Loan
Framework Agreement with Energy and Chemical Company, Datang Finance
Company and Duolun Coal Chemical Company in relation to the provision
of the Entrusted Loan by the Company or Energy and Chemical Company to
Duolun Coal Chemical Company pursuant to the Entrusted Loan Framework
Arrangement, in which Datang Finance Company acts as a lending agent.
Parties
(1) The Company or Energy and Chemical Company, as the lender;
(2) Datang Finance Company, as the lending agent; and
(3) Duolun Coal Chemical Company, as the borrower.
Entrusted Loan Framework Arrangement
Pursuant to the Entrusted Loan Framework Agreement, Datang Finance
Company is entrusted by the Company or Energy and Chemical Company to
act as a lending agent to, inter alia, release the Entrusted Loan by
various tranches to Duolun Coal Chemical Company.
Each of the parties agrees that it shall enter into separate
entrusted loan agreements, during the term of the Entrusted Loan
Framework Agreement, in relation to the provision of the Entrusted Loan
in tranches, provided that such separate entrusted loan agreements
shall be in compliance with the principles, terms and conditions under
the Entrusted Loan Framework Agreement.
Principal amount of the Entrusted Loan
Not exceeding RMB2 billion.
Term
The term for the Entrusted Loan Framework Agreement is 36 months
commencing from 5 July 2012 and ending on 4 July 2015.
Interest rate
At a floating interest rate, being the benchmark interest rate to
be charged for the same level of loans in RMB by the People's Bank of
China for the same period as announced by the People's Bank of China on
the date when each tranche of borrowing is withdrawn and such interest
rate is to be adjusted annually. The adjustment date is 21st December
of each year. The adjusted interest rate will be the benchmark interest
rate for the same level of loans in RMB for the same period announced
by the People's Bank of China on the adjustment date.
As at the Latest Practicable Date, the prevailing benchmark
interest rate to be charged for the same level of loans in RMB by the
People's Bank of China for the same period is 6.15%.
Such interest rate is arrived at after arm's length negotiation
between the Company and Duolun Coal Chemical Company in consideration
of the overall reduction in capital costs to the Group after the
accounts of Duolun Coal Chemical Company (being the controlled
subsidiary of the Company) are consolidated into the accounts of the
Company.
Repayment schedule of the principal of the Entrusted Loan
One-off repayment of the principal by Duolun Coal Chemical Company
upon maturity under the relevant entrusted loan agreements.
Payment schedule of interests of the Entrusted Loan
Interests shall be settled by Duolun Coal Chemical Company on a
quarterly basis. The settlement date falls on the twentieth (20th) day
of the last month of each quarter.
Handling fees
The handling fees shall be charged in tranches by Datang Finance
Company on the date of grant of the relevant tranches of the entrusted
loan and on the date corresponding to the date of grant of that
relevant tranches of the entrusted loan in each following year. The
rate of the handling fees shall be 0.025% of the outstanding amount of
the Entrusted Loan each year.
Effective date
The Entrusted Loan Framework Agreement shall become effective when
it is duly signed by the parties and upon the approval of the internal
authority of each of the parties (or the internal approval procedures
of each of the parties have been implemented), i.e., including
obtaining the approval of the Entrusted Loan Framework Agreement by the
Independent Shareholders at the EGM.
REASONS FOR AND BENEFITS OF ENTERING INTO THE ENTRUSTED LOAN FRAMEWORK
AGREEMENT
In view of the cooperation history between Datang Finance Company
and the Company and given that the provision of entrusted loan services
by Datang Finance Company is covered under the Financial Services
Agreement, Datang Finance Company has better understanding of the
operations of the Company which will allow more expedient and efficient
services than those rendered by other PRC commercial banks. Further,
the handling fees charged by Datang Finance Company will not be higher
than those charged by other PRC commercial banks. In view of the above
considerations, the Company appointed Datang Finance Company, rather
than other PRC commercial banks, as the lending agent.
Further, considering the capital risks control measures under the
Financial Services Agreement as set out in the circular of the Company
dated 16 November 2010 and the terms under the Entrusted Loan Framework
Agreement are normal commercial terms which confer no additional
obligations nor risks on the Company when comparing with other
entrusted loan framework agreement in the market, the Company considers
that no additional risks will be involved by appointing Datang Finance
Company as the lending agent under the Entrusted Loan Framework
Agreement.
In order to ensure the smooth progress of the Duolun Coal Chemical
Project, the Company or Energy and Chemical Company intends to provide
the Entrusted Loan of not exceeding RMB2 billion to Duolun Coal
Chemical Company according to the actual situation of the Duolun Coal
Chemical Project. The Entrusted Loan is beneficial for the subsequent
project construction and the smooth progress of production operation of
the Duolun Coal Chemical Project and is to ensure repayment of due
borrowings by Duolun Coal Chemical Company since part of the Entrusted
Loan will be utilized by Duolun Coal Chemical Company to repay its
existing bank and other borrowings.
Considering the possible higher financial costs for Duolun Coal
Chemical Company to obtain the current loan from other commercial banks
when comparing with the financial costs incurred by the Company to
obtain the funding of the Entrusted Loan, the Company considers that
the overall capital costs to the Group will be reduced after the
accounts of Duolun Coal Chemical Company (being the subsidiary of the
Company) are consolidated into the accounts of the Company.
The Directors are of the view that the terms of the Entrusted Loan
Framework Agreement are fair and reasonable, have been entered into
after arm's length negotiation between all parties thereto and
determined on normal commercial terms and are in the interests of the
Company and the Shareholders as a whole.
INFORMATION RELATING TO THE GROUP
The Group is principally engaged in the development and operation
of power plants, the sale of electricity and thermal power, and the
repair, testing and maintenance of power equipment as well as the
provision of power-related technical services. The main service areas
of the Group are in the PRC.
INFORMATION RELATING TO ENERGY AND CHEMICAL COMPANY
Energy and Chemical Company is principally engaged in the production
and sales businesses for the products including coal-alkene,
coal-natural gas and extraction of alumina from pulverized fuel ash.
INFORMATION RELATING TO DUOLUN COAL CHEMICAL COMPANY
Duolun Coal Chemical Company was incorporated on 19 August 2009
with a registered capital of RMB4,050 million. Duolun Coal Chemical
Company is principally responsible for the construction and operation
of the coal-based olefin project with an annual output of 460,000
tonnes. The equity structure of Duolun Coal Chemical Company is as
follows: Energy and Chemical Company, the Company's wholly-owned
subsidiary, holds 60% equity interests, and CDC, the controlling
Shareholder of the Company, holds 40% equity interests. As mentioned in
the announcement of the Company dated 21 March 2012, the Duolun Coal
Chemical Project has been in trial run phase since 16 March 2012 and it
is expected that additional testing and other work would need to be
conducted and completed before the commencement of actual production.
INFORMATION RELATING TO DATANG FINANCE COMPANY
Datang Finance Company is a non-banking financial institution
incorporated in the PRC on 10 May 2005. The registered capital of
Datang Finance Company is RMB3 billion. The principal business of
Datang Finance Company includes, among others, the provision of deposit
services, loan services, entrusted loan services and entrusted
investment services.
LISTING RULES IMPLICATIONS
As at the Latest Practicable Date, Duolun Coal Chemical Company is
owned as to 60% and 40% by Energy and Chemical Company, a wholly-owned
subsidiary of the Company, and CDC, respectively. Datang Finance
Company is a subsidiary of CDC which is a controlling Shareholder. CDC
together with its subsidiaries, hold approximately 34.71% of the issued
share capital of the Company as at the Latest Practicable Date. Both
Duolun Coal Chemical Company and Datang Finance Company are therefore
connected persons of the Company and the transaction under the
Entrusted Loan Framework Agreement constitutes a connected transaction
of the Company under Chapter 14A of the Listing Rules.
As one of the applicable percentage ratios (as defined in Rule
14.07 of the Listing Rules) for the total principal amount of the
Entrusted Loan under the Entrusted Loan Framework Agreement is more
than 5%, the Entrusted Loan Framework Arrangement and the Entrusted
Loan Framework Agreement are subject to the requirements of reporting,
announcement and approval by the Independent Shareholders of the
Company under Chapter 14A of the Listing Rules.
The Company will disclose the relevant details in the next annual
report and accounts of the Company in accordance with the relevant
requirements as set out in Rule 14A.45 of the Listing Rules.
None of the Director has any material interest in the Entrusted
Loan Framework Agreement. Those connected Directors, including Liu
Shunda, Hu Shengmu and Fang Qinghai, who are the principal management
staff of CDC, have abstained from voting at the Board meeting for
approval of the relevant transaction in accordance with the
requirements of the listing rules of the Shanghai Stock Exchange.
EGM
The Company will convene the EGM to, among other things, consider
and approve the Entrusted Loan Framework Agreement. The notice
convening the EGM and the relevant notice of attendance were dispatched
to the Shareholders on 5 July 2012.
Any Shareholder with a material interest in the transaction and its
associates will abstain from voting at the EGM for approving the
Entrusted Loan Framework Agreement. Therefore, CDC and its associates,
which hold approximately 34.71% of the issued share capital of the
Company as the Latest Practicable Date, shall abstain from voting at
the EGM to approve the Entrusted Loan Framework Agreement.
RECOMMENDATION
Your attention is drawn to the letter from the Independent Board
Committee as set out on pages 10 to 11 of this circular which contains
its recommendation to the Independent Shareholders on the terms of the
Entrusted Loan Framework Agreement. Your attention is also drawn to the
letter of advice received from Mizuho Securities, the independent
financial adviser to the Independent Board Committee and the
Independent Shareholders as set out on pages 12 to 19 of this circular
which contains, among others, its advice to the Independent Board
Committee and the Independent Shareholders in relation to the terms of
the Entrusted Loan Framework Agreement, the casting of votes for or
against the resolution approving the Entrusted Loan Framework Agreement
by poll at the EGM as well as the principal factors and reasons
considered by it in concluding its advice.
The Directors consider that the terms of the Entrusted Loan
Framework Agreement are fair and reasonable and in the interest of the
Shareholders and the Company as a whole and they recommend the
Shareholders to vote in favour of the resolution at the EGM.
Yours faithfully,
By Order of the Board of
Datang International Power Generation Co., Ltd.
Zhou Gang
Secretary to the Board
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LETTER FROM THE INDEPENDENT BOARD COMMITTEE
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DATANG INTERNATIONAL POWER GENERATION CO., LTD.
(a sino-foreign joint stock limited company incorporated in the
People's Republic of China)
(Stock Code: 00991)
Office address
No.9 Guangningbo Street
Xicheng District
Beijing, 100033
The PRC
25 July 2012
To the Independent Shareholders
Dear Sir or Madam,
CONNECTED TRANSACTION
IN RELATION TO
ENTRUSTED LOAN FRAMEWORK AGREEMENT
We refer to the circular issued by the Company to the shareholders
dated 25 July 2012 (the "Circular") of which this letter forms part.
Terms defined in the Circular shall have the same meanings in this
letter unless the context otherwise requires.
Under the Listing Rules, the Entrusted Loan Framework Agreement
constitutes a connected transaction for the Company, and is subject to
the approval of the Independent Shareholders at the EGM.
We have been appointed as the Independent Board Committee to
consider the terms of the Entrusted Loan Framework Agreement and to
advise the Independent Shareholders in connection with the Entrusted
Loan Framework Agreement as to whether, in our opinion, its terms are
fair and reasonable and whether the Entrusted Loan Framework Agreement
is in the interests of the Company and the shareholders as a whole.
Mizuho Securities has been appointed as the independent financial
adviser to advise us in this respect.
We wish to draw your attention to the letter from the Board and the
letter from Mizuho Securities as set out in the Circular. Having
considered the principal factors and reasons considered by, and the
advice of, Mizuho Securities as set out in its letter of advice, we
consider that the Entrusted Loan Framework Agreement is on normal
commercial terms, and that the Entrusted Loan Framework Agreement is in
the best interests of the Company and the Shareholders as a whole.
We also consider that the terms of the Entrusted Loan Framework
Agreement are fair and reasonable. Accordingly, we recommend the
Independent Shareholders to vote in favour of the ordinary resolution
to approve the Entrusted Loan Framework Agreement at the EGM.
Yours faithfully,
For and on behalf of the Independent Board Committee
Li Yanmeng, Zhao Zunlian, Li Hengyuan, Zhao Jie, Jiang Guohua
Independent non-executive Directors
Datang International Power Generation Co., Ltd.
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LETTER FROM MIZUHO SECURITIES ASIA LIMITED
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The following is the text of the letter of advice from Mizuho
Securities Asia Limited, the independent financial adviser to the
Independent Board Committee and Independent Shareholders, in respect of
the Entrusted Loan Framework Agreement which has been prepared for the
purpose of inclusion in this circular.
Mizuho Securities Asia Limited
12th Floor, Chater House,
8 Connaught Road Central, Hong Kong
Tel: 2685-2000 Fax: 2685-2410
25 July 2012
To the Independent Board Committee
and the Independent Shareholders
Datang International Power Generation Co., Ltd.
Dear Sirs,
CONNECTED TRANSACTION
IN RELATION TO
ENTRUSTED LOAN FRAMEWORK AGREEMENT
INTRODUCTION
We refer to our engagement as the independent financial adviser to
the Independent Board Committee and Independent Shareholders in respect
of the Entrusted Loan Framework Agreement. Further details of the
Entrusted Loan Framework Agreement are set out in the letter from the
Board (the "Letter from the Board") in the circular of the Company to
its Shareholders dated 25 July 2012 (the "Circular"), of which this
letter forms part. Capitalised terms used in this letter shall have the
same meanings as those defined in the Circular unless the context
otherwise requires.
On 5 July 2012, the Company entered into the Entrusted Loan
Framework Agreement with Energy and Chemical Company, Datang Finance
Company and Duolun Coal Chemical Company in relation to the provision
of the Entrusted Loan by the Company or Energy and Chemical Company to
Duolun Coal Chemical Company pursuant to the Entrusted Loan Framework
Arrangement, in which Datang Finance Company acts as a lending agent.
As at the Latest Practicable Date, Duolun Coal Chemical Company is
owned as to 60% and 40% by Energy and Chemical Company, a wholly-owned
subsidiary of the Company, and CDC, respectively. Datang Finance
Company is a subsidiary of CDC which is a controlling Shareholder. CDC
together with its subsidiaries, hold approximately 34.71% of the issued
share capital of the Company as at the Latest Practicable Date. Both
Duolun Coal Chemical Company and Datang Finance Company are therefore
connected persons of the Company and the transaction under the
Entrusted Loan Framework Agreement constitutes a connected transaction
of the Company under Chapter 14A of the Listing Rules.
As one of the applicable percentage ratios (as defined in Rule
14.07 of the Listing Rules) for the total principal amount of the
Entrusted Loan under the Entrusted Loan Framework Agreement is more
than 5%, the Entrusted Loan Framework Arrangement and the Entrusted
Loan Framework Agreement are subject to the requirements of reporting,
announcement and approval by the Independent Shareholders of the
Company under Chapter 14A of the Listing Rules.
Our scope of work under this engagement is to assess whether the
terms of the Entrusted Loan Framework Agreement are fair and reasonable
so far as the Shareholders are concerned, and, from that perspective,
whether the Entrusted Loan Framework Agreement is in the interests of
the Company and the Shareholders as a whole. It is not within our scope
of work to opine on any other aspects of the Entrusted Loan Framework
Agreement. In addition, it is not within our terms of reference to
comment on the commercial merits of the Entrusted Loan Framework
Agreement which is the responsibility of the Directors.
BASIS OF OUR OPINION
In arriving at our opinion, we have relied on the information,
opinions and facts supplied, and representations made to us, by the
Directors, advisers and representatives of the Company (including those
contained or referred to in the Circular). We have also assumed that
the information and representations contained or referred to in the
Circular were true and accurate in all respects at the time they were
made and continue to be so at the date of dispatch of the Circular. We
have no reason to doubt the truth, accuracy and completeness of the
information and representations provided to us by the Directors and
senior management of the Company. We have also relied on certain
information available to the public and have assumed such information
to be accurate and reliable, and we have not independently verified the
accuracy of such information. We have been advised by the Directors and
believe that no material facts have been omitted from the Circular.
We consider that we have reviewed sufficient information to reach
an informed view, to justify reliance on the accuracy of the
information contained in the Circular and to provide a reasonable basis
for our opinion. We have not, however, conducted an independent
verification of the information nor have we conducted any form of
in-depth investigation into the businesses and affairs or other
prospects of the Company, and any of their respective subsidiaries or
associates.
PRINCIPAL FACTORS AND REASONS CONSIDERED
In forming our opinion, we have considered the following principal
factors and reasons:
1. BACKGROUND
Information relating to the Group
The Group is principally engaged in the development and
operation of power plants, the sale of electricity and thermal
power, and the repair, testing and maintenance of power equipment
as well as the provision of power-related technical services. The
main service areas of the Group are in the PRC.
Information relating to Energy and Chemical Company
Energy and Chemical Company is a wholly-owned subsidiary of the
Company. It is principally engaged in the production and sales
businesses for the products including coal-alkene, coal-natural gas
and extraction of alumina from pulverized fuel ash.
Information relating to Duolun Coal Chemical Company
Duolun Coal Chemical Company was incorporated on 19 August 2009
with a registered capital of RMB4,050 million. Duolun Coal Chemical
Company is principally responsible for the construction and
operation of the coal-based olefin project with an annual output of
460,000 tonnes. The equity interest of Duolun Coal Chemical Company
is held as to 60% by Energy and Chemical Company, the Company's
wholly-owned subsidiary, and as to 40% by CDC, the controlling
Shareholder of the Company. As mentioned in the announcement of the
Company dated 21 March 2012, the Duolun Coal Chemical Project has
been in trial run phase since 16 March 2012 and it is expected that
additional testing and other work would need to be conducted and
completed before the commencement of actual production.
Information relating to Datang Finance Company
Datang Finance Company is a non-banking financial institution
incorporated in the PRC on 10 May 2005. It is a subsidiary of CDC.
The registered capital of Datang Finance Company is RMB3 billion.
The principal business of Datang Finance Company includes, among
others, the provision of deposit services, loan services, entrusted
loan services and entrusted investment services.
Certain previous major entrusted loans provided by the Company to
Duolun Coal Chemical Company
(i) Revolving entrusted loan agreement in January 2010
On 12 January 2010, the Company entered into a revolving
entrusted loan agreement ("Revolving Entrusted Loan Agreement")
with Datang Finance Company and Duolun Coal Chemical Company in
respect of an entrusted loan arrangement. Pursuant to the Revolving
Entrusted Loan Agreement, Datang Finance Company is designated by
the Company to act as a lending agent to, inter alia, release the
revolving entrusted loan of a principal amount of RMB3 billion,
which is funded by the Company, to Duolun Coal Chemical Company.
The maximum term of the resolving entrusted loan is 36 months for
each loan term from the date of the entering into the Revolving
Entrusted Loan Agreement. The handling charge for the entrusted
loan under the Revolving Entrusted Loan Agreement is calculated at
0.025% of the principal amount of the entrusted loan. The Company
shall pay such handling charge in a one-off basis to Datang Finance
Company when each of the loan under the Revolving Entrusted Loan
Agreement is made. As advised by the Company, Duolun Coal Chemical
Company has fully utilized the principal amount of approximately
RMB 3 billion of such resolving entrusted loan under the Revolving
Entrusted Loan Agreement as at the Latest Practicable Date.
(ii) Framework entrusted loan agreement in October 2011
On 24 October 2011, the Company entered into a framework
entrusted loan agreement ("Framework Entrusted Loan Agreement")
with Energy and Chemical Company, the Diao Yu Tai Branch of China
Construction Bank Corporation ("CCB Diao Yu Tai Branch") and Duolun
Coal Chemical Company. Pursuant to the Framework Entrusted Loan
Agreement, CCB Diao Yu Tai Branch is designated to act as the
lending agent to release the entrusted loan of a principal amount
of RMB 2 billion in various tranches to Duolun Coal Chemical
Company. The term of the Framework Entrusted Loan Agreement is 36
months commencing from 12 October 2011 to 11 October 2014. The
handling charge for the entrusted loan under the Framework
Entrusted Loan Agreement is calculated at 0.025% of the principal
amount of the entrusted loan. The Company shall pay such handling
charge to CCB Diao Yu Tai Branch when the entrusted loan is
released and on every year's corresponding date for the release of
the loan. As advised by the Company, Duolun Coal Chemical Company
has borrowed approximately RMB 2 billion under the Framework
Entrusted Loan Agreement as at the Latest Practicable Date.
2. REASONS FOR AND BENEFITS OF ENTERING INTO THE ENTRUSTED LOAN
FRAMEWORK AGREEMENT
As mentioned in the Letter from the Board, in order to ensure the
smooth progress of the Duolun Coal Chemical Project, the Company or
Energy and Chemical Company intends to provide the Entrusted Loan of
not exceeding RMB2 billion to Duolun Coal Chemical Company according to
the actual situation of the Duolun Coal Chemical Project.
We have discussed with the Company and were advised that the
aggregate amount of the entrusted loans made to Duolun Coal Chemical
Company which were outstanding as at the Latest Practicable Date was
approximately RMB7.1 billion. As advised by the Company, the Duolun
Coal Chemical Project is currently still in trial run phase and
requires additional working capital for funding the further fine-tuning
construction and testing work. In addition, certain existing loans of
Duolun Coal Chemical Company are about to fall due. Accordingly, the
Company entered into the Entrusted Loan Framework Agreement in order to
provide further working capital to Duolun Coal Chemical Company for
ensuring subsequent project completion and smooth progress of production
operation of the Duolun Coal Chemical Project. We understand that part
of the Entrusted Loan shall also be utilised to repay some of the due
borrowings of Duolun Coal Chemical Company. As advised by the Company,
the aggregate amount of additional working capital required by Duolun
Coal Chemical Company before full completion of project construction and
for operation, together with the aggregate amounts of the borrowings
which it needs to repay might be more than RMB2 billion.
The Company advised that, considering the possible higher financial
costs for Duolun Coal Chemical Company to obtain the required loan from
other commercial banks as compared to the financial costs to be
incurred by the Company to obtain the funding of the Entrusted Loan,
the Company considers that the overall capital costs to the Group will
be reduced given that Duolun Coal Chemical Company is a 60% subsidiary
of the Company. The Company further advised that it had not obtained
any loans from financial institutions specifically for the purpose of
the provision of the Entrusted Loan, and the Company intends to fund
the Entrusted Loan from its own financial resources.
In view of the further working capital requirement of Duolun Coal
Chemical Company and the expected saving in the overall capital costs
for the Group on a consolidated financial statements perspective as
advised by the Company, we concur with the view of the Directors that
the terms of the Entrusted Loan Framework Agreement (including the
amount of the Entrusted Loan considering the funding need of Duolun
Coal Chemical Company) is in the ordinary and usual course of business
of the Company, in the interest of the Company, and is fair and
reasonable as far as the interests of the Shareholders as a whole are
concerned.
3. MAJOR TERMS OF THE ENTRUSTED LOAN FRAMEWORK AGREEMENT
Entrusted Loan Framework Arrangement
Pursuant to the Entrusted Loan Framework Agreement, Datang
Finance Company is entrusted by the Company or Energy and Chemical
Company to act as a lending agent to, inter alia, release the
Entrusted Loan by various tranches to Duolun Coal Chemical Company.
Each of the parties agrees that it shall enter into separate
entrusted loan agreements, during the term of the Entrusted Loan
Framework Agreement, in relation to the provision of the Entrusted
Loan in tranches, provided that such separate entrusted loan
agreements shall be in compliance with the principles, terms and
conditions under the Entrusted Loan Framework Agreement.
Principal amount of the Entrusted Loan
Not exceeding RMB2 billion.
Term
The term for the Entrusted Loan Framework Agreement is 36
months commencing from 5 July 2012 and ending on 4 July 2015.
Interest rate
At a floating interest rate, being the benchmark interest rate
to be charged for the same level of loans in RMB by the People's
Bank of China for the same period as announced by the People's Bank
of China on the date when each tranche of borrowing is withdrawn
and such interest rate is to be adjusted annually. The adjustment
date is 21st December of each year. The adjusted interest rate will
be the benchmark interest rate for the same level of loans in RMB
for the same period announced by the People's Bank of China on the
adjustment date.
As at the Latest Practicable Date, the prevailing benchmark
interest rate to be charged for the same level of loans in RMB by
the People's Bank of China for the same period is 6.15%.
As advised by the Company, the average interest rate for Duolun
Coal Chemical Company's existing borrowings (other than the loans
provided by the Group) is approximately 6.35%. We have discussed
with the Company and understand from the Company that since the
Duolun Coal Chemical Project is still in trial run phase, it is
uncertain as to whether Duolun Coal Chemical Company could obtain
financing from other PRC commercial banks at the benchmark lending
rate as announced by the People's Bank of China. As mentioned in
the Letter from the Board, the interest rate under the Entrusted
Loan Framework Agreement is arrived at after arm's length
negotiation between the Company and Duolun Coal Chemical Company in
consideration of the overall reduction in capital costs to the
Group after the accounts of Duolun Coal Chemical Company (being the
subsidiary of the Company) are consolidated into the accounts of
the Company.
We note that in April 2012, the Company has issued a bond with
a principal amount of RMB5 billion and with a maturity of
approximately 3.042 years at a coupon rate of 5.08%, which was
lower than the then benchmark lending rate of 6.90% for three to
five years period as announced by the People's Bank of China.
Having considered that (i) the Company has the ability to obtain
funds at borrowing cost lower than the benchmark lending rate for
the same period as announced by the People's Bank of China as
compared to what Duolun Coal Chemical Company might be able to do
so from other PRC commercial banks, and (ii) Duolun Coal Chemical
Company is a subsidiary of the Company and the accounts of Duolun
Coal Chemical Company are consolidated into the accounts of the
Company, we consider that the interest rate of the Entrusted Loan,
which is set at the benchmark interest rate for loans of the same
period as announced by the People's Bank of China, is on normal
commercial terms, and fair and reasonable.
Handling fees
The handling fees shall be charged in tranches by Datang
Finance Company on the date of grant of the relevant tranches of
the entrusted loan and on the date corresponding to the date of
grant of that relevant tranches of the entrusted loan in each
following year. The rate of the handling fees shall be 0.025% of
the outstanding amount of the Entrusted Loan each year.
We note that the Group has engaged other banks as lending
agents in relation to the provision of entrusted loans to some of
the Group companies and the rates of the handling fees for those
entrusted loans were set at 0.025% of the principal amount of the
entrusted loans. In addition, the handling fee charged by CCB Diao
Yu Tai Branch under the Framework Entrusted Loan Agreement in
October 2011 was set at 0.025%. Based on this, we consider that the
rate of the handling fees for the Entrusted Loan under the
Entrusted Loan Framework Agreement is on normal commercial terms.
As mentioned in the Letter from the Board, the Directors
consider that in view of the cooperation history between Datang
Finance Company and the Company and given that the provision of
entrusted loan services by Datang Finance Company is covered under
the Financial Services Agreement, Datang Finance Company has better
understanding of the operations of the Company which will allow
more expedient and efficient services than those rendered by other
PRC commercial banks. Furthermore, the handling fees charged by
Datang Finance Company will not be higher than those charged by
other PRC commercial banks to the Group companies in previous
entrusted loan cases. In view of the above considerations, the
Company appointed Datang Finance Company, rather than other PRC
commercial banks, as the lending agent. We understand that it may
take more time and administrative efforts to obtain approval from
other commercial banks to act as the lending agents.
Furthermore, considering the capital risks control measures
under the Financial Services Agreement as set out in the
shareholders' circular of the Company dated 16 November 2010, the
Company advised that the terms under the Entrusted Loan Framework
Agreement are normal commercial terms which confer no additional
obligations nor risks on the Company when compared to other typical
entrusted loan arrangements in the market based on the
understanding of the Directors.
In this connection, we consider that it is fair and reasonable
and in the interest of the Company and the Shareholders as a whole
to enter into the Entrusted Loan Framework Arrangement through
Datang Finance Company.
OPINION
Having considered the principal factors and reasons described
above, we are of the opinion that the terms of the Entrusted Loan
Framework Agreement are on normal commercial terms and are fair and
reasonable as far as the interests of the Independent Shareholders are
concerned, and, from this perspective, the Entrusted Loan Framework
Agreement is in the interests of the Company and its Shareholders as a
whole. Accordingly, we recommend the Independent Shareholders to vote
in favour of the ordinary resolution to approve the Entrusted Loan
Framework Agreement at the EGM.
Yours faithfully,
For and on behalf of
MIZUHO SECURITIES ASIA LIMITED
Kelvin S. K. Lau
Managing Director
Equity Capital Markets & Corporate Finance
------------------------------------------------------------------------
APPENDIX GENERAL INFORMATION
------------------------------------------------------------------------
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 OF DIRECTORS, SUPERVISORS AND CHIEF
EXECUTIVE OF THE COMPANY
(i) As at the Latest Practicable Date, save and except Mr. Fang
Qinghai, being a Director, who held 24,000 A shares of the
Company, none of the Directors, supervisors and chief
executive of the Company have any interests and short
positions in the shares, underlying shares and/ or
debentures (as the case may be) of the Company or any of
its associated corporations (within the meaning of the SFO)
which was 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 positions which any
such Director, chief executive or supervisor is taken or
deemed to have under such provisions of the SFO) or which
was required to be entered into the register required to be
kept by the Company under section 352 of the SFO or which
was otherwise required to be notified to the Company and
the Stock Exchange pursuant to the Model Code for Securities
Transactions by Directors of Listed Issuers in the Listing
Rules.
(ii) As at the Latest Practicable Date, none of the Directors,
proposed Directors, supervisors or proposed supervisors of
the Company has any direct or indirect interest in any assets
which have since 31 December 2011 (being the date to which
the latest published audited financial statements of the
Company were made up) been acquired or disposed of by or
leased to any member of the Group, or are proposed to be
acquired or disposed of by or leased to any member of the
Group.
3. SERVICE AGREEMENTS
As at the Latest Practicable Date, none of the Directors, proposed
directors, supervisors or proposed supervisors of the Company had any
existing or proposed service contract with any member of the Group
(excluding contracts expiring or determinable by the Company within one
year without payment of compensation (other than statutory
compensation).
4. INTEREST IN CONTRACT
As at the Latest Practicable Date, none of the Directors or
supervisors of the Company was materially interested in any contract or
arrangement entered into by any member of the Group, and which was
significant in relation to the business of the Group.
5. MATERIAL CHANGES
The Directors are not aware of any material adverse change in the
financial or trading position of the Group since 31 December 2011,
being the date to which the latest published audited financial
statements of the Group were made up.
6. COMPETING INTEREST
As at the Latest Practicable Date, none of the directors of the
Company and its Subsidiaries, or their respective Associates has
interests in the businesses which compete or are likely to compete,
either directly or indirectly, with the businesses of the Company and
its Subsidiaries.
7. EXPERT
(a) The following sets out the qualifications of the expert which
has given its opinion or advice as contained in this
circular:
Name Qualifications
Mizuho Securities A licensed corporation to engage in
types 1 (dealing in securities), 2
(dealing in futures contracts) 4
(advising on securities), 5 (advising
on futures contracts), 6 (advising on
corporate finance) and 9 (asset
management) regulated activities under
the SFO
(b) Mizuho Securities did not have any shareholding, direct or
indirect, in any members of the Group or any rights (whether
legally enforceable or not) to subscribe for or to nominate
persons to subscribe for securities in any members of the
Group as at the Latest Practicable Date.
(c) Mizuho Securities does not have any interest, direct or
indirect, in any assets which have been acquired or disposed
of by or leased to any members of the Group, or which are
proposed to be acquired or disposed of by or leased to any
members of the Group since 31 December 2011, the date to
which the latest published audited financial statements of
the Company were made up.
(d) Mizuho Securities has given and has not withdrawn its written
consent to the issue of this circular with the inclusion of
its letter and references to its name in the form and context
in which they are included.
8. LITIGATION
No member of the Company and its subsidiaries is at present engaged
in any litigation or arbitration of material importance to the Company
and its subsidiaries and no litigation or claim of material importance
to the Company and its subsidiaries is known to the Directors or the
Company to be pending or threatened by or against any member of the
Company and its subsidiaries.
9. MISCELLANEOUS
(a) The registered office of the Company is No. 482,
Guanganmennei Avenue, Xuanwu District, Beijing, the PRC and
the office address of the Company is No. 9 Guangningbo
Street, Xicheng District, Beijing, the PRC.
(b) The place of business of the Company in Hong Kong is at c/o
Stephen Mok & Co., 21/F, Gloucester Tower, The Landmark, 15
Queen's Road Central, Hong Kong.
(c) The Hong Kong share registrar and transfer office of the
Company is Computershare Hong Kong Investor Services Limited
at 46/F, Hopewell Centre, 183 Queen's Road East, Wanchai,
Hong Kong.
(d) The secretary to the Board of the Company is Mr. Zhou Gang.
Mr. Zhou graduated from East China Institute of Water
Conservancy (currently known as Hehai University), and is a
senior engineer.
10. DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the Entrusted Loan Framework Agreement, the consent
letter and the letter of advice from Mizuho Securities are available
for inspection at the principal place of business in Hong Kong of the
Company at 21/F, Gloucester Tower, The Landmark, 15 Queen's Road
Central, Hong Kong during normal business hours from the date of this
circular up to and including 9 August 2012.
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