Formal Notice - Capital Injection

RNS Number : 7000K

Air China Ld

27 June 2014

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

Air China Limited

(a joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 00753)

CONNECTED TRANSACTION:

CAPITAL INJECTION INTO AIR CHINA CARGO

Reference is made to the announcement dated 21 February 2014 made by the Company in respect of the proposed capital injection into Air China Cargo.

The Board is pleased to announce that on 26 June 2014, the Company, Cathay Pacific China Cargo Holdings and Fine Star, being the existing shareholders of Air China Cargo, entered into the Capital Increase Agreement with Air China Cargo, pursuant to which (a) the Company has agreed to make the Cash Contribution and the In-Kind Contribution to subscribe for an additional amount of registered capital of RMB1,020,000,000 in Air China Cargo and (b) Cathay Pacific China Cargo Holdings and Fine Star have agreed to subscribe in cash for additional amounts of registered capital of RMB500,000,000 and RMB480,000,000 respectively in Air China Cargo.

Upon completion of the Capital Injection, the registered capital of Air China Cargo will be increased from RMB3,235,294,118 to RMB5,235,294,118. The respective shareholding of the Company, Cathay Pacific China Cargo Holdings and Fine Star in the then enlarged registered capital of Air China Cargo will remain unchanged at 51%, 25% and 24%, respectively.

INTRODUCTION

Reference is made to the announcement dated 21 February 2014 made by the Company in respect of the proposed capital injection into Air China Cargo.

CAPITAL INCREASE AGREEMENT

The principal terms of the Capital Increase Agreement are summarised as follows:

Date:	26 June 2014

Parties:	(1) the Company
	(2) Cathay Pacific China Cargo Holdings
	(3) Fine Star
	(4) Air China Cargo

Capital Injection

Pursuant to the Capital Increase Agreement, the Company, Cathay Pacific China Cargo Holdings and Fine Star have agreed to increase the registered capital of Air China Cargo by RMB2,000,000,000, of which the Company will subscribe for an additional amount of registered capital of RMB1,020,000,000 for a consideration of the Cash Contribution of RMB847,780,300 and the In-Kind Contribution valued at RMB172,219,700, Cathay Pacific China Cargo Holdings will subscribe for an additional amount of registered capital of RMB500,000,000 for a consideration of RMB500,000,000 in cash and Fine Star will subscribe for an additional amount of registered capital of RMB480,000,000 for a consideration of RMB480,000,000 in cash.

The shareholding structure of Air China Cargo before and after the completion of the Capital Injection is set out as follows:

	Before completion of the Capital Injection		After completion of the Capital Injection
	Amount of the registered capital of Air China Cargo	Percentage	Amount of the registered capital of Air China Cargo	Percentage
	(in RMB)		(in RMB)

The Company	1,650,000,000	51%	2,670,000,000	51%
Cathay Pacific China Cargo Holdings	808,823,530	25%	1,308,823,530	25%
Fine Star	776,470,588	24%	1,256,470,588	24%

Total	3,235,294,118	100%	5,235,294,118	100%

Separately, the shareholders of Air China Cargo have made shareholder loans to Air China Cargo of RMB2,000,000,000 in proportion to their shareholdings in Air China Cargo. These shareholder loans were exempt from the reporting, announcement and independent shareholders' approval requirements under Rule 14A.65(3) of the Listing Rules.

Consideration

Pursuant to the Capital Increase Agreement, the Company shall settle the Cash Contribution within seven Business Days from the Effective Date by transferring the entire amount of the Cash Contribution to the bank account of Air China Cargo and transfer the ownership of the Assets to Air China Cargo upon the Effective Date in accordance with the relevant PRC laws. The Cash Contribution will be funded from the Company's internal resources.

The consideration of the Capital Injection was determined after arm's length negotiations among the parties with reference to, among other things, the financial condition and net asset value of Air China Cargo and the valuation of the Assets. The shareholders of Air China Cargo agreed to make the capital contribution in proportion to their current respective equity interest in Air China Cargo.

Board composition of Air China Cargo

Following completion of the Capital Injection, the composition of the board of directors of Air China Cargo shall remain unchanged.

Condition Precedent

The Capital Injection is conditional upon obtaining approvals from the relevant PRC government authorities, including the National Development and Reform Commission and the Ministry of Commerce of the PRC.

Completion

The Company, Cathay Pacific China Cargo Holdings and Fine Star will apply to the relevant administration of industry and commerce in the PRC for registration of the increase of the registered capital of Air China Cargo within three Business Days after the full settlement of the consideration and transfer of the Assets pursuant to the terms of the Capital Increase Agreement. Completion of such registration is expected to occur within 14 days from the date of submitting all the requisite application documents according to the relevant PRC laws.

Certain provisions of the articles of association and the joint venture contract of Air China Cargo will be amended to reflect the increase of the registered capital of Air China Cargo upon completion of the Capital Injection.

REASONS FOR AND BENEFITS OF THE CAPITAL INJECTION

The objective of the Capital Injection is to support Air China Cargo in achieving its fleet adjustment, reduction of its operating costs and performance improvement in its main cargo business. In addition, the Capital Injection would assist Air China Cargo in developing its cooperation with China Postal Airlines in respect of cargo charter flight programme and establishing a foundation for its strategic framework in the whole logistics value chain, thereby achieving Air China Cargo's sustainable and sound development.

INFORMATION OF THE PARTIES

The Company's principal business activity is air passenger, air cargo and airline-related services.

Cathay Pacific is a company incorporated in Hong Kong and listed on the Stock Exchange, the principal activity of which is the operation of scheduled airline services. Cathay Pacific China Cargo Holdings is a company incorporated in Hong Kong and wholly owned by Cathay Pacific. The principal activity of Cathay Pacific China Cargo Holdings is investment holding.

Fine Star is a company incorporated in the British Virgin Islands and wholly owned by Advent Fortune Limited. The principal activity of Fine Star is investment holding. Advent Fortune Limited obtained a loan from Cathay Pacific in 2010 to finance its acquisition of the entire equity interest in Fine Star and Fine Star's capital contribution to Air China Cargo. In return, Advent Fortune Limited has pledged its equity interest in Fine Star to Cathay Pacific and Cathy Pacific's returns on the loan is equal to the dividend returns on the 24% shareholding in Air China Cargo.

Air China Cargo is a company with limited liability incorporated in the PRC and a subsidiary of the Company. The principal activity of Air China Cargo is the operation of cargo airline services.

The audited total assets and the audited net assets of Air China Cargo as at 31 December 2013 were RMB10,246 million and RMB639 million respectively. The audited net loss of Air China Cargo for the year ended 31 December 2013 was RMB349 million.

IMPLICATIONS UNDER THE LISTING RULES

As at the date of this announcement, Air China Cargo is a non-wholly owned subsidiary of the Company. Cathay Pacific is a substantial shareholder of the Company and therefore a connected person of the Company under the Listing Rules. Cathay Pacific holds more than 10% of the equity interest in Air China Cargo through its wholly owned subsidiary Cathay Pacific China Cargo Holdings. Therefore, Air China Cargo is a connected person of the Company under the Listing Rules. Accordingly, the Capital Contribution constitutes a connected transaction of the Company under Chapter 14A of the Listing Rules.

As each of the applicable percentage ratios (other than the profits ratio) in respect of the Capital Contribution is more than 0.1% but less than 5%, the Capital Contribution is subject to reporting and announcement requirements but exempt from the independent shareholders' approval requirement under Rule 14A.32 of the Listing Rules.

OPINION OF THE DIRECTORS

The Board (including the independent non-executive Directors) considers that the terms of the Capital Contribution are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

The proposal regarding considering and approving the Capital Contribution has been passed at the Board meeting held on 21 February 2014. Each of Mr. Christopher Dale Pratt (then a Director), Mr. Ian Sai Cheung Shiu, Mr. Cai Jianjiang and Mr. Fan Cheng was considered to have a material interest in the Capital Injection and therefore abstained from voting on the proposal.

DEFINITION

In this announcement, unless the context otherwise requires, the following terms shall have the following meanings:

"Air China Cargo"	Air China Cargo Co., Ltd, a company with limited liability incorporated under the laws of the PRC, 51% of whose registered capital is owned by the Company as at the date of this announcement

"Assets"	4 Boeing 757 aircraft together with aircraft components, an auxiliary power unit and two back-up engines, the book value of which was RMB184,388,200 as of 31 March 2014

"Board"	the board of directors of the Company

"Business Day"	a day on which banks in the PRC are generally open for business to the public and which is not a Saturday, Sunday or public holiday in the PRC, but including a day which is declared by the PRC government as a working day for particular or temporary reasons

"Capital Contribution"	the Cash Contribution and the In-Kind Contribution

"Capital Injection"	the proposed increase of registered capital of Air China Cargo by RMB2,000,000,000 pursuant to the Capital Increase Agreement

"Capital Increase Agreement"	the agreement relating to the Capital Injection into Air China Cargo, dated 26 June 2014, entered into among the Company, Cathay Pacific China Cargo Holdings, Fine Star and Air China Cargo

"Cash Contribution"	the contribution of RMB847,780,300 in cash by the Company into Air China Cargo, which forms part of the Capital Injection

"Cathay Pacific"	Cathay Pacific Airways Limited, a company incorporated in Hong Kong and listed on the Stock Exchange, the principal activity of which is the operation of scheduled airline services

"Cathay Pacific China Cargo Holdings"	Cathay Pacific China Cargo Holdings Limited, a company incorporated in Hong Kong and wholly owned by Cathay Pacific, the principal activity of which is investment holding

"Company"	Air China Limited, a company incorporated in the PRC, whose H shares are listed on the Stock Exchange as its primary listing venue and on the Official List of the UK Listing Authority as its secondary listing venue, and whose A shares are listed on the Shanghai Stock Exchange

"Director(s)"	the director(s) of the Company

"Effective Date"	the date of obtaining the approvals from the relevant PRC government authorities for the Capital Injection

"Fine Star"	Fine Star Enterprises Corporation, a company incorporated in the British Virgin Islands and wholly owned by Advent Fortune Limited, a company incorporated in Cayman Islands held by a charitable trust, which holds a 24% equity interest in the registered capital of Air China Cargo as at the date of this announcement

"Hong Kong"	Hong Kong Special Administrative Region of the PRC

"In-Kind Contribution"	the contribution of the Assets, which were valued at RMB172,219,700 as at 31 March 2014 based on the valuation reports prepared by an independent and qualified PRC appraiser, by the Company into Air China Cargo, which forms part of the Capital Injection

"Listing Rules"	The Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited

"percentage ratios"	the percentage ratios set out in Rule 14.07 of the Listing Rules, i.e. "assets ratio", "profits ratio", "revenue ratio", "consideration ratio" and "equity capital ratio"

"PRC"	the People's Republic of China, excluding, for the purpose of this announcement only, Hong Kong, Macau and Taiwan

"RMB"	Renminbi, the lawful currency of the PRC

"Shareholders"	the shareholders of the Company

"Stock Exchange"	The Stock Exchange of Hong Kong Limited