DISCLOSEABLE AND CONNECTED TRANSACTIONS CIRCULAR
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 a licensed securities dealer, bank manager, solicitor, professional
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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.
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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.
DATANG INTERNATIONAL POWER GENERATION CO., LTD.
(a sino-foreign joint stock limited company incorporated in the People's
Republic of China)
(Stock Code: 991)
DISCLOSEABLE AND CONNECTED TRANSACTIONS
Independent Financial Adviser to the Independent Board Committee
and the Independent Shareholders
Mizuho Securities Asia Limited
A letter from the Board is set out on pages 4 to 12 of this circular. A letter from the
Independent Board Committee is set out on pages 13 to 14 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 15 to 24 of this circular.
25 May 2010
CONTENTS
Page
DEFINITIONS............................................................................1
LETTER FROM THE BOARD..................................................................4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE...........................................13
LETTER FROM MIZUHO SECURITIES.........................................................15
APPENDIX --
GENERAL INFORMATION...................................................................25
DEFINITIONS
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
"BEIG" Beijing Energy Investment (Group) Company Limited
"Beijing Gas Group" Beijing Gas Group Co., Ltd
"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 a substantial Shareholder of the
Company pursuant to the Listing Rules which owns approximately
35.08% 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
"Directors" the director(s) of the Company
"Energy and Chemical Datang Energy and Chemical Company Limited, a wholly-owned
Company" subsidiary of the Company
"Fuxin Coal-based Liaoning Datang International Fuxin Coal-based Gas Company
Gas Company" Limited
"Fuxin Coal-based the coal-based gas project with production of 4,000,000,000 cubic
Gas Project" meters of natural gas per annum in Fuxin, Liaoning
"Fuxin Investment investment agreement dated 24 May 2010 entered into between
Agreement" Energy and Chemical Company and CDC in respect of the Fuxin
Coal-based Gas Project
"General Meeting" the general meeting of the Company to be held for the purposes
of, among others, considering and approving, the Fuxin Investment
Agreement and the Keqi Investment Agreement
"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
"Hebei Construction" Hebei Construction Investment Corporation Limited
"Hong Kong" the Hong Kong Special Administrative Region of the PRC
"Independent Board the independent board committee of the Company, comprising five
Committee" independent non-executive Directors, and each of them does not
have any material interest in the Keqi Investment Agreement and
the Fuxin Investment Agreement
"Independent the shareholders who are not required to abstain from voting at
Shareholders" the General Meeting to approve the Keqi Investment Agreement and
the Fuxin Investment Agreement. CDC and its associates are
required to be abstained from voting in approving the Keqi
Investment Agreement and the Fuxin Investment Agreement at the
General Meeting and Tianjin Jinneng and its associates are
required to be abstained from voting in approving the Keqi
Investment Agreement at the General Meeting
"Keqi Coal-based Inner Mongolia Dating International Kesheketeng Qi Coal-based Gas
Gas Company" Company Limited
"Keqi Coal-based the coal-based gas project with production of 4,000,000,000 cubic
Gas Project" meters of natural gas per annum in Kesheketeng Qi, Inner Mongolia
"Keqi Investment investment agreement dated 24 May 2010 entered into between
Agreement" Energy and Chemical Company, Beijing Gas Group, CDC and Tianjin
Jinneng in respect of the Keqi Coal-based Gas Project
"Latest Practicable 19 May 2010, being the latest practicable date prior to the
Date" printing of this circular for ascertaining certain information in
this circular
"Listing Rules" the Rules Governing the Listing of Securities on the Stock
Exchange
"London Stock The London Stock Exchange Limited
Exchange"
"Mizuho Securities" Mizuho Securities Asia Limited, the independent financial adviser
to the Independent Board Committee and the Independent
Shareholders in respect of the Keqi Investment Agreement and the
Fuxin Investment 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
"NDRC" National Development and Reform Commission of the People's
Republic of China
"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)
"Shanghai Listing the Rules Governing the Listing of Securities on the Shanghai
Rules" Stock Exchange
"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
"Tianjin Jinneng" Tianjin Jinneng Investment Company which owns approximately 9.85%
of the issued share capital of the Company as at the Latest
Practicable Date
"%" per cent
LETTER FROM THE BOARD
DATANG INTERNATIONAL POWER GENERATION CO., LTD.
(a sino-foreign joint stock limited company incorporated in the People's Republic of
China)
(Stock Code: 991)
Executive Directors: Mr. Cao Jingshan Mr. Zhou Office address:No.9 Guangningbo
GangNon-executive Directors: Mr. Zhai Ruoyu StreetXicheng DistrictBeijing,
(Chairman) Mr. Fang Qinghai Mr. Hu Shengmu 100140the PRC Principal place
Mr. Liu Haixia Ms. Guan Tiangang Mr. Su Tiegang of business in Hong Kong:c/o
Mr. Ye Yonghui Mr. Li Gengsheng Independent Stephen Mok & Co.
non-executive Directors: Mr. Xie Songlin 21/F, Gloucester Tower The
Mr. Liu Chaoan Mr. Yu Changchun Mr. Xia Qing Landmark15 Queen's Road
Mr. Li Hengyuan CentralHong Kong
25 May 2010
To the Shareholders
Dear Sir or Madam,
DISCLOSEABLE AND CONNECTED TRANSACTIONS
BACKGROUND
The sixth meeting of the sixth session of the Board, which was convened in March 2008,
considered and approved that the Company shall enter into the Keqi investment agreement
with Beijing Gas Group, CDC and New Horizon Capital Advisors Limited on 11 April 2008
and proposed to contribute jointly to the establishment of the project company for the
purpose of constructing the Keqi Coal-based Gas Project which will produce 4 billion
cubic-metres per annum, and the investment has been considered and approved by the 2007
annual general meeting convened on 30 May 2008. In August 2009, the NDRC approved the
Keqi Coal-based Gas Project in NDRC Energy [2009] Doc. No. 2163. According to the approval
opinion, Energy and Chemical Company, Beijing Gas Group, CDC and Tianjin Jinneng will
contribute jointly to construct the Keqi Coal-based Gas Project.
According to the approval opinion of the NDRC, compared with the original Keqi investment
agreement, the project investment amount, the contributing parties and the contribution
proportions have all been changed. After negotiation, Energy and Chemical Company
intended to enter into the Keqi Investment Agreement with Beijing Gas Group, CDC and
Tianjin Jinneng to contribute to the establishment of Keqi Coal-based Gas Company in the
proportions of 51%, 34%, 10% and 5%, respectively for the purposes of planning,
constructing and operating the Keqi Coal-based Gas Project.
Keqi Coal-based Gas Project is located in Kesheketeng Qi, Chifeng City, Inner Mongolia.
The project will use brown coal from Inner Mongolia Shengli Coal Mine East Unit 2, in
which the Company has controlling interest, as raw materials and fuels, It will be a coal
conversion project making clean, efficient and high value-added use of coal through the
adoption of internationally advanced technologies such as pressurized fixed bed
gasification, synthesis gas purification and synthesis gas methanation. Natural gas, the
principal product, will be transmitted by a long-distance pipeline covering 359 km in
total which runs from the project site (Kesheketeng Qi destination) to the final
destination in Miyun, Beijing, the PRC. The Keqi Coal-based Gas Project will be
constructed in three stages. The Phase I project is expected to commence operation by
2012 and the project is expected to produce 4 billion cubic meters of natural gas per
annum upon completion of the entire project and commencement of production.
In March 2010, the NDRC approved the Fuxin Coal-based Gas Project in NDRC Energy [2010]
Doc. No. 378. According to the approval opinion, Energy and Chemical Company and CDC shall
jointly establish Fuxin Coal-based Gas Project. After negotiation, Energy and Chemical
Company and CDC intended to enter into the Fuxin Investment Agreement to contribute to
the establishment of Fuxin Coal-based Gas Company in the respective proportions of 90%
and 10% for the purposes of planning, constructing and operating the Fuxin Coal-based Gas
Project.
The Fuxin Coal-based Gas Project is located in the Changyingzi Town, Xinqiu District,
Fuxin City, Liaoning Province and is a new coal conversion project using brown coal from
Shengli Coal Mine, Inner Mongolia as its raw materials. It will be a coal conversion
project making clean, efficient and high value-added use of coal through the adoption of
internationally advanced technologies such as pressurized fixed bed gasification,
synthesis gas purification and synthesis gas methanation. The natural gas produced is
supplied via long-distance pipelines to cities such as Shenyang, Tieling, Fushun, Benxi
and Fuxin. Its pipeline covers 334 km in total. The Fuxin Coal-based Gas Project will be
constructed in three stages. The Phase I project is expected to commence operation by
2013 and the project is expected to produce 4 billion cubic meters of natural gas per
annum upon completion of the entire project and commencement of production.
The purposes of this circular are:
1 to provide you with further details of the Keqi Investment Agreement and the Fuxin
Investment Agreement;
2 to set out the recommendation of the Independent Board Committee in respect of the
Keqi Investment Agreement and the Fuxin Investment 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 Keqi Investment
Agreement and the Fuxin Investment Agreement.
KEQI INVESTMENT AGREEMENT
Date
24 May 2010
Parties
(1) Energy and Chemical Company;
(2) Beijing Gas Group;
(3) CDC; and
(4) Tianjin Jinneng.
To the best of the Directors' knowledge, information and belief having made all reasonable
enquiry, Beijing Gas Group (and its ultimate beneficial owners) are third parties
independent of the Company and connected persons of the Company under the Listing Rules.
Major terms of the Keqi Investment Agreement
(1) Energy and Chemical Company, Beijing Gas Group, CDC and Tianjin Jinneng agreed to
jointly contribute capital to the establishment of Keqi Coal-based Gas Company for the
purposes of planning, constructing and operating the Keqi Coal-based Gas Project. The
Keqi Coal-based Gas Project involves a total investment of approximately RMB25.71 billion.
The ultimate registered capital of Keqi Coal-based Gas Company is approximately 30% of the
total investment of the project, which is approximately RMB7.71 billion. Energy and
Chemical Company, Beijing Gas Group, CDC and Tianjin Jinneng agree to contribute in cash
to the establishment of Keqi Coal-based Gas Company in the proportions and amounts as
follows:
Contribution Contribution amount
proportion
Energy and Chemical Company 51% Approximately RMB3,932.1 million
Beijing Gas Group 34% Approximately RMB2,621.4 million
CDC 10% Approximately RMB771 million
Tianjin Jinneng 5% Approximately RMB385.5 million
The parties to the Keqi Investment Agreement shall contribute to the capital of Keqi
Coal-based Gas Company according to the construction progress of the Keqi Coal-based
Gas Project.
(2) The initial registered capital of Keqi Coal-based Gas Company is RMB100,000,000.
The respective parties will contribute by way of cash in their respective contribution
proportions. The respective contribution proportions of Energy and Chemical Company,
Beijing Gas Group, CDC and Tianjin Jinneng are 51%, 34%, 10% and 5%, while the
respective amount to be contributed by Energy and Chemical Company, Beijing Gas Group,
CDC and Tianjin Jinneng are RMB51 million, RMB34 million, RMB10 million and RMB5 million.
As at the Latest Practicable Date, the respective parties to the Keqi Investment
Agreement have not contributed any registered capital to Keqi Coal-based Gas Company.
Energy and Chemical Company's contribution to the registered capital of Keqi Coal-based
Gas Company will be funded by internal resources.
(3) Establishment Funds other than the capital of the Keqi Coal-based Gas Project will
be provided by Keqi Coal-based Gas Company through financing.
(4) The parties to the agreement have agreed to recognise the preliminary work in
respect of the Keqi Coal-based Gas Project before the Keqi Investment Agreement was
entered into, including (but not limited to) all expenses incurred, agreements and
contracts entered into, documents submitted for record and corresponding undertakings
made, so as to ensure the continuity of the preliminary work of the project. Preliminary
expenses incurred by the project, including time value (the basis of calculating the time
value is to be agreed among the respective parties to the agreement), shall be audited by
a qualified accounting firm jointly appointed by the parties to the agreement and shall be
reimbursed by Keqi Coal-based Gas Company upon confirmation by all parties.
(5) The term of operation of Keqi Coal-based Gas Company shall be 50 years from the date
of issuance of the relevant business license.
(6) The Keqi Investment Agreement will become effective once the respective parties to
the Keqi Investment Agreement have respectively obtained their internal approvals and the
approvals by the relevant government authorities of the PRC for the investment items in
the Keqi Investment Agreement. As at the Latest Practicable Date, the Keqi Investment
Agreement is subject to consideration and approval by the Independent Shareholders at the
General Meeting.
FUXIN INVESTMENT AGREEMENT
Date
24 May 2010
Parties
(1) Energy and Chemical Company; and
(2) CDC
Major terms of the Fuxin Investment Agreement
(1) Energy and Chemical Company and CDC agreed to jointly establish Fuxin Coal-based Gas
Company for the purposes of constructing and operating the Fuxin Coal-based Gas Project.
The Fuxin Coal-based Gas Project involves a total investment of approximately RMB24.57
billion. The ultimate registered capital of Fuxin Coal-based Gas Company is approximately
30% of the total investment of the project, which is approximately RMB7.37 billion.
Energy and Chemical Company and CDC will contribute in cash to the establishment of in the
proportions and amounts as follows:
Contribution Contribution amount
proportion
Energy and Chemical Company 90% Approximately RMB6,633 million
CDC 10% Approximately RMB737 million
The parties to the Fuxin Investment Agreement shall contribute to the capital of Fuxin
Coal-based Gas Company according to the construction progress of Fuxin Coal-based Gas
Project.
(2) Pursuant to the Fuxin Investment Agreement, the initial registered capital of Fuxin
Coal-based Gas Company is RMB100,000,000. The respective parties will contribute by way of
cash in their respective contribution proportions. The respective contribution proportion
of Energy and Chemical Company and CDC are 90% and 10%, while the respective amount to be
contributed by Energy and Chemical Company and CDC are RMB90 million and RMB10 million,
respectively. As at the Latest Practicable Date, the respective parties to the Fuxin
Investment Agreement have not contributed any registered capital to Fuxin Coal-based Gas
Company. Energy and Chemical Company's contribution to the registered capital of Fuxin
Coal-based Gas Company will be funded by internal resources.
(3) Establishment Funds other than the capital of the Fuxin Coal-based Gas Project will
be provided by Fuxin Coal-based Gas Company through financing.
(4) Both parties have agreed to recognize the preliminary work in respect of the Fuxin
Coal-based Gas Project before the Fuxin Investment Agreement was entered into, including
(but not limited to) all expenses incurred, agreements and contracts entered into,
documents submitted for record and corresponding undertakings made, so as to ensure the
continuity of the preliminary work of the project. Preliminary expenses, including time
value (the time value is calculated based on the five-year long-term loan interest rate
of the People's Bank of China), shall be audited by a qualified accounting firm jointly
appointed by both parties and shared by both parties in proportion to their contributions
upon confirmation by the parties.
(5) The tentative term of operation of Fuxin Coal-based Gas Company shall be 50 years
from the date of issuance of the relevant business license.
(6) The Fuxin Investment Agreement will become effective once the respective parties to
the Fuxin Investment Agreement have respectively obtained their internal approvals and the
approvals by the relevant government authorities of the PRC for the investment items in
the Fuxin Investment Agreement. As at the Latest Practicable Date, the Fuxin Investment
Agreement is subject to consideration and approval by the Independent Shareholders at the
General Meeting.
REASONS FOR AND BENEFITS OF ENTERING INTO THE KEQI INVESTMENT AGREEMENT AND THE FUXIN
INVESTMENT AGREEMENT
The Company has devised the objective of diversifying its business structure, and the
investments in and constructions of Keqi Coal-based Gas Project and Fuxin Coal-based Gas
Project by Energy and Chemical Company will allow the Company to develop on the aspect of
clean energy production.
The Keqi Coal-based Gas Project is located in an area with abundant coal resources which
provides a reliable source of raw materials and fuels to the Keqi Coal-based Gas Project,
and with abundant water resources and convenient transportation facilities which will
help to lower the operation costs of the Keqi Coal-based Gas Project. Moreover, the Keqi
Coal-based Gas Project aims to supply gas largely to Beijing and to cities along the gas
transmission pipeline upon its completion. As a political, cultural and financial centre
of the PRC, Beijing has an enormous demand for clean energy natural gas, given its higher
requirement for the quality of the air environment. The Company believes the Keqi
Coal-based Gas Project, upon its completion, will benefit from the growing demand for
clean energy in Beijing and the cities along the gas transmission pipeline, which in turn
will enhance the Company's profitability as a whole.
The major supply targets of the Fuxin Coal-based Gas Project following its completion are
Shenyang and the cities surrounding it such as Tieling, Fushun, Benxi and Fuxin. Liaoning
Province has experienced fast economic growth and is a leader in economic development
among the three provinces in northeast China and has a great demand for clean energy
source such as natural gas. Besides, the above cities are relatively concentrated, which
facilitates the transmission of natural gas products from this project via long-distance
pipelines. With the acceleration of urbanisation, the reform in coal-fired boilers and the
development of gas buses and industries using natural gas as raw material, the supply gap
of natural gas in the above cities will grow bigger and bigger. The Company believes that
following the completion of the Fuxin Coal-based Natural Gas Project, it will benefit from
the growing demand for clean energy of Shenyang and the cities surrounding it which have
experienced rapid economic development, thereby increasing the overall profitability of
the Company.
In view of the above, the Directors believe that the terms of the Keqi Investment
Agreement and the Fuxin Investment Agreement fair and reasonable and the entering into the
Keqi Investment Agreement and the Fuxin Investment Agreement is in the interest of the
Company and the Shareholders as a whole and enhance the Company's overall profitability.
DISCLOSEABLE TRANSACTIONS AND CONNECTED TRANSACTIONS
As one or more of the applicable percentage ratios (as defined in Rule 14.07 of the
Listing Rules) under the Keqi Investment Agreement and the Fuxin Investment Agreement are
more than 5% but less than 25%, the entering into of the Keqi Investment Agreement and the
Fuxin Investment Agreement constitute discloseable transactions of the Company under
Chapter 14 of the Listing Rules which is subject to the notification and announcement
requirements.
As at the Latest Practicable Date, CDC and its subsidiaries held approximately 35.08% of
the issued share capital of the Company. Accordingly, CDC is a connected person of the
Company under the Listing Rules (Tianjin Jinneng held approximately 9.85% of the issued
share capital of the Company as at the Latest Practicable Date and thus Tianjin Jinneng is
a connected person of the Company under the Shanghai Listing Rules). The Keqi Investment
Agreement was entered into by Energy and Chemical Company, Beijing Gas Group, CDC and
Taianjin Jinneng, and the Fuxin Investment Agreement was entered into by Energy and
Chemical Company and CDC and therefore constitute connected transactions of the
Company under Chapter 14A of the Listing Rules. As one or more of the applicable
percentage ratios (as defined in Rule 14.07 of the Listing Rules) in respect of the Keqi
Investment Agreement and the Fuxin Investment Agreement are more than 2.5%, the entering
into of the Keqi Investment Agreement and the Fuxin Investment Agreement is subject to the
reporting, announcement and Independent Shareholders' approval requirements under Chapter
14A of the Listing Rules.
The Company will also disclose the relevant details in the next published annual report
and accounts of the Company in accordance with the relevant requirements as set out in
Rule 14A.45 of the Listing Rules.
Those Directors who have a material interest in the transactions under the Keqi Investment
Agreement and the Fuxin Investment Agreement (by virtue of being key management staff of
CDC and Tianjin Jinneng) have abstained from voting at the relevant Board meetings for
approvals of the transactions.
INFORMATION RELATING TO KEQI COAL-BASED GAS COMPANY
Pursuant to the Keqi Investment Agreement, Keqi Coal-based Gas Company, upon its
establishment, will construct the Keqi Coal-based Gas Project, which is located in
Kesheketeng Qi, Chifeng City, Inner Mongolia. The project will use brown coal from Inner
Mongolia Shengli Coal Mine East Unit 2, in which the Company has controlling interest, as
raw materials and fuels. It will be a coal conversion project making clean, efficient and
high value-added use of coal through the adoption of internationally advanced technologies
such as pressurized fixed bed gasification, synthesis gas purification and synthesis gas
methanation. Natural gas, the principal product, will be transmitted by a long-distance
pipeline covering 359 km in total which runs from the project site (Kesheketeng Qi
destination) to the final destination in Miyun, Beijing, the PRC. The Keqi Coal-based Gas
Project will be constructed in three stages. The Phase I project is expected to commence
operation by 2012 and the project is expected to produce 4 billion cubic meters of natural
gas per annum upon completion of the entire project and commencement of production.
Keqi Coal-based Gas Company will become an indirect subsidiary of the Company upon its
establishment, and the operating results of Keqi Coal-based Gas Company will be
consolidated into the accounts of the Company subsequent to its establishment.
INFORMATION RELATING TO FUXIN COAL-BASED GAS COMPANY
Under the Fuxin Investment Agreement, Fuxin Coal-based Gas Company will, upon its
establishment, construct the Fuxin Coal-based Gas Project. The Fuxin Coal-based Gas
Project is located in the Changyingzi Town, Xinqiu District, Fuxin City, Liaoning Province
and is a new coal conversion project using brown coal from Inner Mongolia Shengli Coal
Mine East Unit 2, in which the Company has controlling interest, as its raw materials. It
will be a coal conversion project making clean, efficient and high value-added use of coal
through the adoption of internationally advanced technologies such as pressurized fixed
bed gasification, synthesis gas purification and synthesis gas methanation. The natural
gas produced is supplied via long-distance pipes to cities such as Shenyang, Tieling,
Fushun, Benxi and Fuxin. Its pipeline covers 334 km in total. The Fuxin Coal-based Gas
Project will be constructed in three stages. The Phase I project is expected to commence
operation by 2013 and the project is expected to produce 4 billion cubic meters of natural
gas per annum upon completion of the entire project and commencement of production.
Fuxin Coal-based Gas Company will become an indirect subsidiary of the Company upon its
establishment, and the operating results of Fuxin Coal-based Gas Company will be
consolidated into the accounts of the Company subsequent to its establishment.
INFORMATION RELATING TO THE COMPANY
The Company 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 and power- related technical services, with its main service areas being in the
PRC.
INFORMATION RELATING TO ENERGY AND CHEMICAL COMPANY
Energy and Chemical Company is a limited company and a wholly-owned subsidiary of the
Company established in the PRC. Its scope of operations includes the development,
transfer, consultation and service of energy and chemical technology, investment
management; project design; repair and maintenance, installation and testing of chemical
and power equipment.
INFORMATION RELATING TO CDC
CDC is a State-owned enterprise. Its main scope of operations are the development,
investment, construction, operation and management of power energy, organisation of power
(thermal) production and sales, power technology development and consultation.
INFORMATION RELATING TO BEIJING GAS GROUP
Beijing Gas Group is a wholly-owned subsidiary of Beijing Enterprises Holding Company
Limited, a company incorporated in Hong Kong and listed on The Stock Exchange of Hong Kong
Limited. Beijing Enterprises Group Company Limited, a State-owned enterprise in the PRC,
is the beneficial controller of Beijing Enterprises Holding Company Limited. Beijing Gas
Group has a registered capital of RMB1,980,000,000 and is principally engaged in the
city-gas pipeline business.
INFORMATION RELATING TO TIANJIN JINNENG
Tianjin Jinneng is a State-owned enterprise and commenced formal operation in Tianjin in
1992, with a registered capital of RMB4.187 billion. The company is principally engaged
in energy resources development and investment, project consulting services and materials
sales etc.
General meeting
Company will convene the General Meeting to, among other things, consider and approve the
Keqi Investment Agreement and the Fuxin Investment Agreement. The relevant notice of the
General Meeting will be issued by the Company in due course. Shareholders and their
associates who have a material interest in the transactions shall abstain from voting in
the General Meeting. CDC and its associates, holding approximately 35.08% of the issued
share capital of the Company as at the Latest Practicable Date, have to be abstained from
voting in approving the Keqi Investment Agreement and the Fuxin Investment Agreement at
the General Meeting in accordance with the Listing Rules. Tianjin Jinneng and its
associates, which held approximately 9.85% of the issued share capital of the Company at
the Latest Practicable Date, has a material interest (being one of the parties
contributing capital) in the Keqi Investment Agreement (as contribution party).
Accordingly, Tianjin Jinneng and its associates shall be abstained from voting in
approving the Keqi Investment Agreement at the General Meeting.
RECOMMENDATION
Your attention is drawn to the letter from the Independent Board Committee as set out on
pages 13 to 14 of this circular which contains its recommendation to the Independent
Shareholders on the terms of the Keqi Investment Agreement and the Fuxin Investment
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 15 to 24 of this circular. The letter
contains, among others, Mizuho Securities' advice to the Independent Board Committee and
the Independent Shareholders in relation to the terms of the Keqi Investment Agreement and
the Fuxin Investment Agreement, its advice on casting of votes for or against the
resolutions approving the Keqi Investment Agreement and the Fuxin Investment Agreement by
poll at the General Meeting, as well as principal factors and reasons considered by
Mizuho Securities in concluding its advice.
The Directors consider that the terms of the Keqi Investment Agreement and the Fuxin
Investment Agreement are fair and reasonable and the transactions under the Keqi
Investment Agreement and the Fuxin Investment Agreement are in the interest of the
Shareholders and the Company as a whole and they recommend the Shareholders to vote in
favour of such resolutions at the General Meeting.
Yours faithfully, By Order of the Board of
Datang International Power Generation Co., Ltd.
Zhou Gang
Secretary to the Board
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
DATANG INTERNATIONAL POWER GENERATION CO., LTD.
(a sino-foreign joint stock limited company incorporated in the People's
Republic of China)
(Stock Code: 991)
office address
No.9 Guangningbo Street
Xicheng District
Beijing, 100140
The PRC
25 May 2010
To the Independent Shareholders
Dear Sir or Madam,
DISCLOSEABLE AND CONNECTED TRANSACTIONS
We refer to the circular issued by the Company to the Shareholders dated 25 May 2010 (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 entering into of the Keqi Investment Agreement and the Fuxin
Investment Agreement constitutes discloseable and connected transactions for the Company,
and are subject to the approval of the Independent Shareholders at the General Meeting.
We have been appointed as the Independent Board Committee to consider the terms of the
Keqi Investment Agreement and the Fuxin Investment Agreement and to advise the
Independent Shareholders in connection with the Keqi Investment Agreement and the Fuxin
Investment Agreement as to whether, in our opinion, its terms are fair and reasonable and
whether the Keqi Investment Agreement and the Fuxin Investment Agreement are 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 Keqi Investment Agreement and the Fuxin Investment Agreement
are on normal commercial terms, and that the Keqi Investment Agreement and the Fuxin
Investment Agreement are in the best interests of the Company and the Shareholders as a
whole.
We also consider that the terms of the Keqi Investment Agreement and the Fuxin Investment
Agreement are fair and reasonable. Accordingly, we recommend the Independent Shareholders
to vote in favour of the ordinary resolutions to approve the Keqi Investment Agreement and
the Fuxin Investment Agreement at the General Meeting.
Yours faithfully, For and on behalf of
the Independent Board Committee
Xie Songlin, Yu Changchun, Liu Chaoan, Xia Qing, Li Hengyuan
Independent non-executive Directors
Datang International Power Generation Co., Ltd.
LETTER FROM MIZUHO SECURITIES
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 Keqi Investment Agreement and the Fuxin Investment
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: 2685-2400
25 May 2010
To the Independent Board Committee
and the Independent Shareholders
Datang International Power Generation Co., Ltd.
Dear Sirs,
DISCLOSEABLE AND CONNECTED TRANSACTIONS
INTRODUCTION
We refer to our engagement as the independent financial adviser to the Independent Board
Committee and Independent Shareholders in respect of the Keqi Investment Agreement and the
Fuxin Investment Agreement. Further details of the Keqi Investment Agreement and the
Fuxin Investment 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 May, 2010 (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 24 May, 2010, the Company entered into the Keqi Investment Agreement with Beijing Gas
Group, CDC and Tianjin Jinneng to jointly contribute capital to the establishment of
Keqi Coal-based Gas Company in the proportions of 51%, 34%, 10% and 5%, respectively for
the purposes of planning, constructing and operating the Keqi Coal-based Gas Project. On
the same date, the Company entered into the Fuxin Investment Agreement with CDC to jointly
contribute capital to the establishment of Fuxin Coal-based Gas Company in the proportions
of 90% and 10%, respectively for the purposes of constructing and operating the Fuxin
Coal-based Gas Project.
As at the Latest Practicable Date, CDC and its subsidiaries held approximately 35.08% of
the issued share capital of the Company. Accordingly, CDC is a connected person of the
Company under the Listing Rules (Tianjin Jinneng held approximately 9.85% of the issued
share capital of the Company as at the Latest Practicable Date and thus Tianjin Jinneng is
a connected person of the Company under the Shanghai Listing Rules). The Keqi Investment
Agreement was entered into by Energy and Chemical Company, Beijing Gas Group, CDC and
Tianjin Jinneng, and the Fuxin Investment Agreement was entered into by Energy and
Chemical Company and CDC and therefore constitute connected transactions of the Company
under Chapter 14A of the Listing Rules. As one or more of the applicable percentage
ratios (as defined in Rule 14.07 of the Listing Rules) in respect of the Keqi Investment
Agreement and the Fuxin Investment Agreement are more than 2.5%, the entering into of the
Keqi Investment Agreement and the Fuxin Investment Agreement are subject to the reporting,
announcement and Independent Shareholders' approval requirements under Chapter 14A of the
Listing Rules.
Our scope of work under this engagement is to assess whether the terms of the Keqi
Investment Agreement and the Fuxin Investment Agreement are fair and reasonable so far as
the Shareholders are concerned, and, from that perspective, whether the Keqi Investment
Agreement and the Fuxin Investment Agreement are 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 Keqi Investment Agreement and the Fuxin Investment Agreement. In addition, it is
not within our terms of reference to comment on the commercial merits of the Keqi
Investment Agreement and the Fuxin Investment 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 or any of
its respective subsidiaries or associates.
PRINCIPAL FACTORS AND REASONS CONSIDERED
In forming our opinion, we have considered the following principal factors and reasons:
1. BACKGROUND
Background of the Keqi Investment Agreement and information relating to Keqi Coal-based
Gas Company
On 11 April 2008, the Company entered into the Keqi investment agreement with Beijing Gas
Group, CDC and New Horizon Capital Advisors Limited and proposed to contribute jointly to
the establishment of the project company for the purpose of constructing the Keqi
Coal-based Gas Project which will produce 4 billion cubic-metres per annum. The investment
has been considered and approved by the 2007 annual general meeting of the Company
convened on 30 May 2008.
In August 2009, the NDRC approved the Keqi Coal-based Gas Project in NDRC Energy [2009]
Doc. No. 2163. According to the approval opinion, Energy and Chemical Company, Beijing Gas
Group, CDC and Tianjin Jinneng will contribute jointly to construct the Keqi Coal-based
Gas Project. According to the approval opinion of the NDRC, compared with the original
Keqi investment agreement, the project investment amount, the contributing parties and the
contribution proportions have all been changed. After negotiation, Energy and Chemical
Company intended to enter into the Keqi Investment Agreement with Beijing Gas Group, CDC
and Tianjin Jinneng to contribute to the establishment of Keqi Coal-based Gas Company in
the proportions of 51%, 34%, 10% and 5%, respectively for the purposes of planning,
constructing and operating the Keqi Coal-based Gas Project.
As discussed in the Letter from the Board, pursuant to the Keqi Investment Agreement,
Keqi Coal-based Gas Company, upon its establishment, will construct the Keqi Coal-based
Gas Project, which is located in Kesheketeng Qi, Chifeng City, Inner Mongolia. The project
will use brown coal from Inner Mongolia Shengli Coal Mine East Unit 2, in which the
Company has controlling interest, as raw materials and fuels. It will be a coal conversion
project making clean, efficient and high value-added use of coal through the adoption of
internationally advanced technologies such as pressurized fixed bed gasification,
synthesis gas purification and synthesis gas methanation. Natural gas, the principal
product, will be transmitted by a long-distance pipeline covering 359 km in total which
runs from the project site (Kesheketeng Qi destination) to the final destination in Miyun,
Beijing, the PRC. The Keqi Coal-based Gas Project will be constructed in three stages. The
Phase I project is expected to commence operation by 2012 and the project is expected to
produce 4 billion cubic meters of natural gas per annum upon completion of the entire
project and commencement of production.
Background of the Fuxin Investment Agreement and information relating to Fuxin Coal-based
Gas Company
In March 2010, the NDRC approved the Fuxin Coal-based Gas Project in NDRC Energy [2010]
Doc. No. 378. On 24 May, 2010, the Company entered into the Fuxin Investment Agreement
with CDC to contribute jointly to the establishment of Fuxin Coal-based Gas Company in
the proportions of 90% and 10%, respectively for the purposes of constructing and
operating the Fuxin Coal-based Gas Project.
Under the Fuxin Investment Agreement, Fuxin Coal-based Gas Company will, upon its
establishment, construct the Fuxin Coal-based Gas Project. The Fuxin Coal-based Gas
Project is located in the Changyingzi Town, Xinqiu District, Fuxin City, Liaoning Province
and is a new coal conversion project using brown coal from Inner Mongolia Shengli Coal
Mine East Unit 2, in which the Company has controlling interest, as its raw materials. It
will be a coal conversion project making clean, efficient and high value-added use of coal
through the adoption of internationally advanced technologies such as pressurized fixed
bed gasification, synthesis gas purification and synthesis gas methanation. The natural
gas produced is supplied via long-distance pipes to cities such as Shenyang, Tieling,
Fushun, Benxi and Fuxin. Its pipeline covers 334 km in total. The Fuxin Coal-based Gas
Project will be constructed in three stages. The Phase I project is expected to commence
operation by 2013 and the project is expected to produce 4 billion cubic meters of natural
gas per annum upon completion of the entire project and commencement of production.
Information relating to the Company
The Company 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 and power-related technical services, with its main service areas being in the
PRC.
Information relating to Energy and Chemical Company
Energy and Chemical Company is a wholly-owned subsidiary of the Company established in the
PRC. Its scope of operations includes the development, transfer, consultation and service
of energy and chemical technology, investment management, project design, repair and
maintenance, installation and testing of chemical and power equipment.
Information relating to CDC
CDC is a State-owned enterprise. Its main scope of operations are the development,
investment, construction, operation and management of power energy, organisation of power
(thermal) production and sales, power technology development and consultation.
Information relating to Beijing Gas Group
Beijing Gas Group is a wholly-owned subsidiary of Beijing Enterprises Holding Company
Limited, a company incorporated in Hong Kong and listed on The Stock Exchange of Hong Kong
Limited. Beijing Enterprises Group Company Limited, a State-owned enterprise in the PRC,
is the beneficial controller of Beijing Enterprises Holding Company Limited. Beijing Gas
Group has a registered capital of RMB1,980,000,000 and is principally engaged in the
city-gas pipeline business.
Information relating to Tianjin Jinneng
Tianjin Jinneng is a State-owned enterprise and commenced formal operation in Tianjin in
1992, with a registered capital of RMB4.187 billion. The company is principally engaged
in energy resources development and investment, project consulting services and materials
sales etc.
2. MAJOR TERMS OF THE KEQI INVESTMENT AGREEMENT AND THE FUXIN INVESTMENT AGREEMENT
Major terms of the Keqi Investment Agreement
(1) Energy and Chemical Company, Beijing Gas Group, CDC and Tianjin Jinneng agreed to
jointly contribute capital to the establishment of Keqi Coal-based Gas Company for the
purposes of planning, constructing and operating the Keqi Coal-based Gas Project. The
total investment of Keqi Coal-based Gas Project is approximately RMB25.71 billion. The
ultimate registered capital of Keqi Coal-based Gas Company is approximately 30% of the
total investment of the project, which is approximately RMB7.71 billion. Energy and
Chemical Company, Beijing Gas Group, CDC and Tianjin Jinneng agreed to contribute in cash
to the establishment of Keqi Coal-based Gas Company in the proportions and amounts as
follows:
Contribution Contribution amount
proportion
Energy and Chemical Company 51% Approximately RMB3,932.1 million
Beijing Gas Group 34% Approximately RMB2,621.4 million
CDC 10% Approximately RMB771 million
Tianjin Jinneng 5% Approximately RMB385.5 million
(2) The initial registered capital of Keqi Coal-based Gas Company is RMB100,000,000. The
respective parties will contribute by way of cash in their respective contribution
proportions. The respective contribution proportions of Energy and Chemical Company,
Beijing Gas Group, CDC and Tianjin Jinneng are 51%, 34%, 10% and 5%, while the respective
amounts to be contributed by Energy and Chemical Company, Beijing Gas Group, CDC and
Tianjin Jinneng are RMB51 million, RMB34 million, RMB10 million and RMB5 million. As at
the Latest Practicable Date, the respective parties to the Keqi Investment Agreement have
not contributed any registered capital to Keqi Coal-based Gas Company. Energy and Chemical
Company's contribution to the registered capital of Keqi Coal-based Gas Company will be
funded by internal resources.
(3) Establishment funds other than the capital of the Keqi Coal-based Gas Project will be
provided by Keqi Coal-based Gas Company through financing.
(4) The parties to the agreement have agreed to recognise the preliminary work in
respect of the Keqi Coal-based Gas Project before the Keqi Investment Agreement was
entered into, including (but not limited to) all expenses incurred, agreements and
contracts entered into, documents submitted for record and corresponding undertakings
made, so as to ensure the continuity of the preliminary work of the project. Preliminary
expenses incurred by the project, including time value (which is to be agreed between the
respective parties to the agreement), shall be audited by a qualified accounting firm
jointly appointed by the parties to the agreement and shall be reimbursed by Keqi
Coal-based Gas Company upon confirmation by all parties.
(5) The term of operation of Keqi Coal-based Gas Company shall be 50 years from the date
of issuance of the relevant business licence.
Major terms of the Fuxin Investment Agreement
(1) Energy and Chemical Company and CDC agreed to jointly establish Fuxin Coal-based Gas
Company for the purposes of constructing and operating the Fuxin Coal-based Gas Project.
The total investment of the Fuxin Coal-based Gas Project is approximately RMB24.57 billion.
The ultimate registered capital of Fuxin Coal-based Gas Company is approximately 30% of
the total investment of the project, which is approximately RMB7.37 billion. Energy and
Chemical Company and CDC will contribute in cash to the establishment of in the
proportions and amounts as follows:
Contribution Contribution amount
proportion
Energy and Chemical Company 90% Approximately RMB6,633 million
CDC 10% Approximately RMB737 million
(2) Pursuant to the Fuxin Investment Agreement, the initial registered capital of Fuxin
Coal-based Gas Company is RMB100,000,000. The respective parties will contribute by way
of cash in their respective contribution proportions. The respective contribution
proportion of Energy and Chemical Company and CDC are 90% and 10%, while the respective
amount to be contributed by Energy and Chemical Company and CDC are RMB90 million and
RMB10 million. As at the Latest Practicable Date, the respective parties to the Fuxin
Investment Agreement have not contributed any registered capital to Fuxin Coal-based Gas
Company. Energy and Chemical Company's contribution to the registered capital of Fuxin
Coal-based Gas Company will be funded by internal resources.
(3) Establishment funds other than the capital of the Fuxin Coal-based Gas Project will
be provided by Fuxin Coal-based Gas Company through financing.
(4) Both parties have agreed to recognize the preliminary work in respect of the Fuxin
Coal-based Gas Project before the Fuxin Investment Agreement was entered into, including
(but not limited to) all expenses incurred, agreements and contracts entered into,
documents submitted for record and corresponding undertakings made, so as to ensure the
continuity of the preliminary work of the project. Preliminary expenses, including time
value (the time value is calculated based on the five-year long-term loan interest rate
of the People's Bank of China), shall be audited by a qualified accounting firm jointly
appointed by both parties and shared by both parties in proportion to their contributions
upon confirmation by the parties.
(5) The tentative term of operation of Fuxin Coal-based Gas Company shall be 50 years
from the date of issuance of the relevant business license.
3. DISCUSSION OF MAJOR TERMS
As mentioned above, the parties to the Keqi Investment Agreement have agreed to recognise
the preliminary work in respect of the Keqi Coal-based Gas Project before the Keqi
Investment Agreement was entered into, including (but not limited to) all expenses
incurred, agreements and contracts entered into, documents submitted for record and
corresponding undertakings made, so as to ensure the continuity of the preliminary work
of the project. In addition, the parties to the Fuxin Investment Agreement agreed to
acknowledge various recognize the preliminary work on the Fuxin Coal-based Gas Project,
which have been developed by the Company, including (but not limited to) all expenses
incurred, agreements and contracts entered into, documents submitted for record and
corresponding undertakings made, so as to ensure the continuity of the preliminary work
of the project.
As the projects are in line with the business diversification strategy of the Company and
that the Company holds controlling stake in the joint ventures for undertaking the
projects, it is reasonable for the Company to make prior investment in the initial stage
of development of the projects. Given that there are arrangements of recovering the
incurred expenses by the Company and any other joint venture partners described above, we
consider that it is fair and reasonable for the Company to make payments for the projects
in advance.
As (i) each of the Company, Beijing Gas Group, CDC and Tianjin Jinneng proportionally
share their respective cash contribution to the registered capital of Keqi Coal-based Gas
Company based on their respective interests in the Keqi Coal-based Gas Project; and (ii)
the Company and CDC proportionally share their respective cash contribution to the
registered capital of Fuxin Coal-based Gas Company based on their respective interests in
the Fuxin Coal-based Gas Project, we are of the view that it is reasonable for the Company
to contribute 51% and 90% of the registered capital of Keqi Coal-based Gas Company and
Fuxin Coal-based Gas Company respectively.
We consider that the amount of the initial capital of each of the Keqi Coal-based Gas
Company and the Fuxin Coal-based Gas Company of RMB100,000,000 is reasonable considering
the amount of the ultimate registered capital, the total investment amount and the nature
and size of the Keqi Coal-based Gas Project and the Fuxin Coal-based Gas Project.
Furthermore, we understand that the shareholders of Keqi Coal-based Gas Company and Fuxin
Coal-based Gas Company shall contribute the remaining capital amount based on the
construction progress of the Keqi Coal-based Gas Project and the Fuxin Coal-based Gas
Project respectively. We consider that such arrangement is reasonable given the nature
and size of the Keqi Coal-based Gas Project and the Fuxin Coal-based Gas Project.
We understand that the total investments other than the registered capital of the Keqi
Coal-based Gas Project and the Fuxin Coal-based Gas Project, i.e. 70% of the total
investments, would be financed by Keqi Coal-based Gas Company and Fuxin Coal-based Gas
Company respectively through financing. Since the projects require a substantial amount
of investment, it might not be financially efficient to finance the projects by
registered capital entirely. Therefore, we concur with the Directors' view that the
remaining funds for the Keqi Coal-based Gas Project and the Fuxin Coal-based Gas Project
to be financed by project loans is fair and reasonable and in the interests of the
Company and the Shareholders as a whole.
Since the projects require a substantial amount of investment, it would be beneficial to
the Company if the joint ventures can have a long term of operation. In our view, the
term of operation of Keqi Coal-based Gas Company and Fuxin Coal-based Gas Company of 50
years from the date of issuance of the relevant business licence is a reasonable one
given the nature and size of the Keqi Coal-based Gas Project and the Fuxin Coal-based Gas
Project.
Having considered the above, we consider that the terms of the Keqi Investment Agreement
and the Fuxin Investment Agreement are fair and reasonable as far as the interests of the
Shareholders are concerned.
4. REASONS FOR AND BENEFITS OF ENTERING INTO THE KEQI INVESTMENT AGREEMENT AND THE
FUXIN INVESTMENT AGREEMENT
As mentioned in the Letter from the Board, the Company intends to diversify its business.
The investments in the Keqi Coal-based Gas Project and the Fuxin Coal-based Gas Project
will enable the Company to expand its electricity power generation business to other
businesses in the energy sector.
The Keqi Coal-based Gas Project is located in an area with abundant coal resources which
provides a reliable source of raw materials and fuels to the Keqi Coal-based Gas Project,
and with abundant water resources and convenient transportation facilities which will help
to lower the operation costs of the Keqi Coal-based Gas Project. Moreover, the Keqi
Coal-based Gas Project aims to supply gas largely to Beijing and to cities along the gas
transmission pipeline upon its completion. As a political, cultural and financial centre
of the PRC, Beijing has an enormous demand for natural gas, a clean energy, given its
higher requirement for the quality of the air environment. The Company believes the Keqi
Coal-based Gas Project, upon its completion, will benefit from the growing demand for
clean energy in Beijing and the cities along the gas transmission pipeline, which in turn
will enhance the Company's profitability as a whole.
The major supply targets of the Fuxin Coal-based Gas Project following its completion are
Shenyang and the cities surrounding it such as Tieling, Fushun, Benxi and Fuxin. As
mentioned in the Letter from the Board, Liaoning Province has experienced fast economic
growth and is a leader in economic development among the three provinces in northeast
China and has a great demand for clean energy source such as natural gas. Besides, the
above cities are relatively concentrated, which facilitates the transmission of natural
gas products from this project via long-distance pipelines. With the acceleration of
urbanisation, the reform in coal-fired boilers and the development of gas buses and
industries using natural gas as raw material, the supply gap of natural gas in the above
cities will grow bigger and bigger. The Company believes that following the completion of
the Fuxin Coal-based Natural Gas Project, it will benefit from the growing demand for
clean energy of Shenyang and the cities surrounding it which have experienced rapid
economic development, thereby increasing the overall profitability of the Company.
As mentioned above, the Keqi Coal-based Gas Project will use brown coal from Inner
Mongolia Shengli Coal Mine East Unit 2, in which the Company has controlling interest, as
raw materials and fuels, and the Fuxin Coal-based Gas Project will also use brown coal
from Inner Mongolia Shengli Coal Mine East Unit 2 as its raw materials. As the Company
owned and controlled Inner Mongolia Shengli Coal Mine East Unit 2, the brown coal from
such coal mine could provide a reliable source of raw materials to the projects with cost
advantage, and the Company is in a good position in arranging the main raw materials for
the projects.
Based on the data from CEIC, an independent data provider, the consumption of gas in
Beijing and Liaoning Province has increased by approximately 152% and 90% (or a compound
annual growth rate ("CAGR") of approximately 20% and 14%) respectively from year 2003 to
year 2008. According to a report issued by an independent international research company
in November 2009, the gas consumption in China is expected to increase by approximately
43% (or a CAGR of approximately 7%) from year 2009 to year 2014, but gas production is
expected to increase by approximately 28% (or a CAGR of approximately 5%) from year 2009
to year 2014.
Having considered the increase in gas consumption in Liaoning Province for the past few
years, the acceleration of urbanisation, the reform in coal-fired boilers, the development
of gas buses and industries using natural gas as raw material, as well as the expected
increase in gas consumption in China for the next few years, we concur with the
Directors' view that the Company will benefit from the Fuxin Coal-based Gas Project.
Furthermore, having considered the increase in gas consumption in Beijing for the past few
years, higher requirement for the quality of air environment in Beijing which might lead
to high demand in clean energy such as natural gas, as well as the expected increase in
gas consumption in China for the next few years, we concur with the Directors' view that
the Company will benefit from the Keqi Coal-based Gas Project.
The Company's investments in the Keqi Coal-based Gas Project and the Fuxin Coal-based Gas
Project enable the Company to diversify its business structure into clean energy
production, to enjoy synergistic benefits from its coal mine, and to leverage on the
increasing trend on consumption for gas in Beijing and Liaoning province.
In addition, as advised by the Directors, the Keqi Coal-based Gas Project is set up as a
joint venture project with participation of other parties. This would enable the Company
(i) to leverage on the capital edge and/or business connections and experience of the
other parties to the Keqi Investment Agreement, such as the local connections in Beijing
and experience in the city-gas pipeline business of Beijing Gas Group; (ii) to spread its
risks associated with the project; and (iii) to allow the Company to diversify its
resources into other viable projects. We agree with the Directors that CDC, Beijing Gas
Group and Tianjin Jinneng are preferred joint venture partners for the Keqi Coal-based
Gas Project given that the project is in an early stage of development, and the
co-operations with CDC, Beijing Gas Group and Tianjin Jinneng are in interests of the
Company and its shareholders as a whole.
The Fuxin Coal-based Gas Project is set up as a joint venture project with CDC. This would
enable the Company (i) to leverage on the capital edge of CDC; (ii) to spread its risks
associated with the project; and (iii) to allow the Company to diversify its resources
into other viable projects. We agree with the Directors that CDC is a preferred joint
venture partner for the Fuxin Coal-based Gas Project given that the project is in an
early stage of development, and the cooperation with CDC is in interests of the Company
and its shareholders as a whole.
5. WORKING CAPITAL
The total investment of Keqi Coal-based Gas Project is estimated to be approximately
RMB25.71 billion and the ultimate registered capital of Keqi Coal-based Gas Company is
approximately 30% of the total investment of the project, which is approximately RMB7.71
billion. Therefore, the ultimate registered capital to be contributed by the Group would
be approximately RMB3,932.1 million (which is calculated based on 51% of RMB7.71 billion).
The initial registered capital of Keqi Coal-based Gas Company is RMB100 million.
Therefore, the initial registered capital contributed by the Group was approximately
RMB51 million (which is calculated based on 51% of RMB100 million). The Group's
contribution to the initial registered capital of Keqi Coal-based Gas Company will be
funded by its internal resources.
The total investment of Fuxin Coal-based Gas Project is estimated to be approximately
RMB24.57 billion and the ultimate registered capital of Keqi Coal-based Gas Company is
approximately 30% of the total investment of the project, which is approximately RMB7.37
billion. Therefore, the ultimate registered capital to be contributed by the Group would
be approximately RMB6,633 million (which is calculated based on 90% of RMB7.37 billion).
The initial registered capital of Keqi Coal-based Gas Company is RMB100 million.
Therefore, the initial registered capital contributed by the Group was approximately
RMB90 million (which is calculated based on 90% of RMB100 million). The Group's
contribution to the initial registered capital of Fuxin Coal-based Gas Company will be
funded by its internal resources.
We have discussed with the Company on the impact of the capital contribution pursuant to
the Keqi Investment Agreement and the Fuxin Investment Agreement on the working capital
position of the Company and have reviewed the annual results of the Company for the year
ended 31 December 2009. We note that the Company had cash of approximately
RMB1,506,435,000 as at 31 December 2009. Furthermore, the amount of unutilised banking
facilities of the Group is well in excess of the aggregate amount of the ultimate
registered capital of Keqi Coal-based Gas Company and Fuxin Coal-based Gas Company which
should be contributed by the Company (i.e. approximately RMB10,566.1 million). We concur
with the view of the Directors that the Company has sufficient resources to finance its
capital contribution obligations pursuant to the Keqi Investment Agreement and the Fuxin
Investment Agreement.
OPINION
Having considered the principal factors and reasons described above, we are of the opinion
that the terms of the Keqi Investment Agreement and the Fuxin Investment 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 Keqi Investment
Agreement and the Fuxin Investment Agreement are 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 resolutions to be proposed at the General Meeting to approve the
Keqi Investment Agreement and the Fuxin Investment Agreement.
Yours faithfully,For and on behalf of
MIZUHO SECURITIES ASIA LIMITED
Kelvin S. K. Lau
Managing DirectorCapital Markets & Corporate Finance
APPENDIX
GENERAL INFORMATION
1. RESPONSIBILITY STATEMENT
This circular includes particulars given in compliance with the Listing Rules for the
purpose of giving information with regard to the Company. The Directors collectively and
individually accept full responsibility for the accuracy of the information contained in
this circular and confirm, having made all reasonable enquiries that to the best of their
knowledge and belief, there are no other facts the omission of which would make any
statement in this circular misleading.
2. DISCLOSURE OF INTERESTS
(a) 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 2009 (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.
(b) Substantial Shareholders of the Company
As at the Latest Practicable Date, so far as the Directors are aware, each of the
following persons, not being a Director, chief executive or supervisor of the Company, had
an interest in the Shares which falls to be disclosed to the Company and the Stock
Exchange under the provisions of Divisions 2 and 3 of Part XV of the SFO:
Name Class of Number of Percentage to Percentage Percentage
issued issued ordinary total issued to total to total
Shares shares held share capital issued issued
of the Company Domestic H Shares
Shares
China Datang A shares 3,959,241,160 32.16% 44.02% --
Corporation (L)
(Note 1)
H shares 358,680,000 2.91% -- 10.82% (L)
(L)
Beijing Energy
Investment
(Group) Company A shares 1,285,777,280 10.44% 14.30% --
(Note 2) (L)
Hebei Construction
Investment (Group)
Company Limited A shares 1,299,872,927 10.56% 14.45% --
(Note 3) (L)
Tianjin Jinneng
Investment A shares 1,212,012,600 9.85% 13.48% --
Company (Note 4) (L)
Blackrock, Inc. H Shares 246,726,002 2.00% (L) -- 7.44% (L)
(L)
16,082,000 0.13% (S) -- 0.49% (S)
(S)
(L) means long position (S) means short position (P) means lending pool
Notes:
1. Each of Mr. Zhai Ruoyu, Mr. Hu Shengmu and Mr. Fang Qinghai, all non-executive
Directors, is an employee of China Datang Corporation.
2. Mr. Liu Haixia and Ms. Guan Tiangang, non-executive Directors, are employees of
Beijing Energy Investment (Group) Company.
3. Each of Mr. Su Tiegang and Mr. Ye Yonghui, both non-executive Directors, is an
employee of Hebei Construction Investment (Group) Company Limited (previously known as
Hebei Construction Investment Company).
4. Mr. Li Gengsheng, a non-executive Director, is an employee of Tianjin Jinneng
Investment Company.
Save as disclosed above and so far as the Directors are aware, as at the Latest
Practicable Date, no other person had an interest or short position in the Shares or
underlying Shares (as the case may be) 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.
(c) Substantial shareholders of other members of the Group
As at the Latest Practicable Date, so far as the Directors are aware, each of the entities
set out in the column titled "Shareholders holding 10% or more in other members of the
Group", not being a Director, chief executive or supervisor of the Company, was directly
or indirectly interested in 10% or more of the nominal value of any class of share capital
carrying rights to vote in all circumstances at general meetings of any member of the
Group:
Other members of the Group Shareholders holding 10% Percentage shareholding
or more in other members of Shareholders in
of the Group other members of the
Group
Inner Mongolia Datang Beijing Jingneng 25%
International Tuoketuo Power International Energy
Generation Company Limited Company Limited
Inner Mongolia Mengdian 15%
Huaneng Thermal Power
Company Limited
Tianjin Datang International Tianjin Jinneng Investment 25%
Panshan Power Generation Company Company
Shanxi Datang International Tianjin Jinneng Investment 40%
Shentou Power Generation Company Company
Yunnan Datang International Yunnan Investment Holdings 15%
Honghe Power Generation Company Group Company Limited
Yunnan Xiaolongtan 10%
Mining Bureau
Gansu Datang International State Power Development 25%
Liancheng Power Generation Company Limited
Company Limited
Gansu Power Investment 20%
Longneng Company Limited
Hebei Datang International Tangshan Construction 20%
Tangshan Thermal Power Company Investment Company Limited
Limited
Yunnan Datang International Nalan Honghezhou Development and 20%
Hydropower Development Company Investment Company Limited
Limited
Jinping County Xinshida 15%
Investment Company Limited
Beijing Huake Power 14%
Engineering and Technology
Company Limited
Yunnan Datang International Beijing State Power Anrong 25%
Lixianjiang Hydropower Power Investment Company
Development Company Limited Limited
Shanxi Datang International Jinzhou Huafu Power 20%
Yuncheng Power Generation Investment Company Limited
Company Limited
Jiangsu Datang International Nantong State-owned Assets 10%
Lvsigang Power Generation Company Investment Holdings Limited
Limited
China Datang Corporation 35%
Guangdong Datang International Beijing China Power Huaze 12%
Chaozhou Power Generation Company Investment Company Limited
Limited
Fujian Datang International Jinzhou Huafu Power 34%
Ningde Power Generation Company Investment Company Limited
Limited
Mindong Power Investment 10%
Company Limited
Chongqing Datang International Chongqing Hangyun 24.5%
Wulong Hydropower Development Construction Development
Company Limited Company Limited
Chongqing Dingtai Power 24.5%
(Group) Company Limited
Yunnan Datang International Yunnan Wenshan Power 25%
Wenshan Hydropower Development Company Limited
Company Limited
China Hydro-power 15%
Consultancy Group Kunming
Survey and Design Research
Institute
Hebei Datang International Hebei Construction 30%
Wangtan Power Co., Ltd. Investment (Group) Company
Limited
Chongqing Datang International Chongqing City Power 30%
Shizhu Power Generation Company Investment Group Company
Limited
Inner Mongolia Datang Duolun Hydropower 49%
International Duolun Hydropower Generation Company Limited
Multiple Development Company
Limited
Sichuan Datang International Ganzi Gantou Hydropower 20%
Ganzi Hydropower Generation Generation Development
Development Company Limited Company Limited
Chongqing Datang International Chongqing Energy Resources 12%
Pengshui Hydropower Development Investment Group Company
Company Limited
Chongqing Dingtai Power 12%
(Group) Company Limited
Chongqing Tuoyuan Industry 12%
Co., Ltd.
Guizhou Province Development 12%
Investment Company
Guizhou Wujiang Hydropower 12%
Development Co., Ltd.
Zhejiang Datang International Zhejiang Energy Group 35%
Wushashan Power Generation Co., Ltd.
Company Limited
Ningbo City Power 10%
Development Company
Inner Mongolia Datang Beijing China Power Huaze 49%
International Hohhot Thermal Investment Co., Ltd.
Power Generation Company Limited
Inner Mongolia Datang Beijing Guoneng Zhixin 25%
International Renewable Energy Investment Co., Ltd.
Development Company Limited
Qinghua Tongfang 25%
Environment Co., Ltd.
Duolun Xinyuan Renewable 24%
Resources Co., Ltd.
Yunnan Datang International Yunnan Huitai Power 30%
Hengjiang Hydropower Development Generation Co., Ltd.
Company Limited
Inner Mongolia Datang Lu Guiying 16.56%
International Zhungeer Mining
Company Limited China Energy and Fuel 16%
Company Limited
Chen Shengyi 14%
Inner Mongolia Datang Beijing Jingneng 25%
International Tuoketuo No.2 Power International Energy
Generation Company Limited Company Limited
China Datang Corporation 20%
Inner Mongolia Mengdian 15%
Huaneng Thermal Power
Company Limited
Hebei Datang International Tangshan Construction and 18%
Fengrun Thermal Power Company Investment Company Limited
Limited
Ningxia Datang International Daba Ningxia Power Generation 35%
Power Generation Company Limited (Group) Company Limited
China Huadian Corporation 20%
Hebei Datang International Tangshan Construction and 16%
Fengrun Thermal Power Company Investment Company Limited
Limited
Shanxi Datang International Linfenhexi Thermal Power 20%
Linfen Thermal Power Company Company Limited
Limited
Hebei Qian'an Thermal Power Beijing State Power Anrong 18%
Company Limited Power Investment Company
Limited
Tangshan Binghe Power Plant 15%
Beijing Guohong Huaan Power 10%
Investment Company Limited
Save as disclosed above in sections 2(a) and (b) as at the Latest Practicable Date, there
was no other person (other than a Director, supervisor or chief executive of the Company
or a member of the Group), who had an interest or short position in the Shares or
underlying Shares which would fall to be disclosed to the Company under the provisions of
Divisions 2 and 3 of Part XV of the SFO, or who was, directly or indirectly, interested in
10% or more of the nominal value of any class of share capital carrying rights to vote in
all circumstances at general meetings of any other 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 2009, 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 2009, 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 address 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, 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
A copy of the Keqi investment agreement dated 11 April 2008 entered into between Beijing
Gas Group, CDC and New Horizon Capital Advisors Limited, Keqi Investment Agreement, the
Fuxin Investment 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, 15 Queen's Road Central, Hong Kong during
normal business hours from the date of this circular up to and including 9 June 2010.
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