Continuing Connected Transact

RNS Number : 2740C

Datang Intl Power Generation Co Ld

29 August 2008

 



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

DATANG INTERNATIONAL POWER GENERATION CO., LTD.

 

(a sino-foreign joint stock limited company incorporated in the People's Republic of China)

(Stock Code: 991)

ANNOUNCEMENT

CONTINUING CONNECTED TRANSACTIONS

 

Reference is made to the announcement of the Company dated 10 May 2007 relating to the provision of financial services by Datang Finance to the Company under the financial services agreement dated 10 May 2007 entered into between the Company and Datang Finance.   Financial Services Agreement   The Board announces that on 28 August 2008, the Company and Datang Finance entered into the Financial Services Agreement with a term of three years, pursuant to which Datang Finance has agreed to provide the Group with deposit services, loan services and other financial services subject to the terms and conditions provided therein.   Continuing Connected Transactions   CDC is a substantial shareholder of the Company pursuant to the Listing Rules which owned approximately 33.70% of the issued share capital of the Company as at the date of this announcement. Datang Finance is a Subsidiary of CDC, and is therefore a connected person of the Company. Accordingly, the Financial Services Agreement and the transactions contemplated thereunder constitute continuing connected transactions of the Company under the Listing Rules.   The loan services provided by Datang Finance to the Group will constitute financial assistance to be provided by a connected person for the benefit of the Group. As such services are on normal commercial terms which are similar to or even more favourable than those offered by independent third parties for comparable services in the PRC, and no security over the assets of the Group will be granted in respect of the loan services, the loan services are exempt under Rule 14A.65(4) of the Listing Rules from all reporting, announcement and independent shareholders’ approval requirements. As both the asset and consideration ratios (as defined in Rule 14.07 of the Listing Rules) for the provision of the deposit services under the Financial Services Agreement are more than 2.5%, the deposit services to be provided by Datang Finance to the Group are subject to the reporting, announcement and independent shareholders' approval requirements as set out in Rules 14A.45 to 14A.48 of the Listing Rules. CDC and its associates have to be abstained from voting at the EGM. The Company will 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.   The Company expects that each of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the total fees payable by the Company to Datang Finance in respect of the provision of the other financial services under the Financial Services Agreement will fall within the de minimis threshold as stipulated under Rule 14A.33(3) of the Listing Rules. The Company will comply with the reporting, announcement and independent shareholders' approval requirements of the Listing Rules if the transaction amount of the other financial services to be provided by Datang Finance to the Group under the Financial Services Agreement exceed the relevant threshold. A circular containing details of the Financial Services Agreement, a letter from the independent board committee of the Company and a letter from the independent financial advisor, both advising in respect of the terms of the Financial Services Agreement, and the notice of the EGM will be despatched to the Shareholders as soon as practicable.

 

Reference is made to the announcement of the Company dated 10 May 2007 relating to the provision of financial services by Datang Finance to the Company under the financial services agreement dated 10 May 2007 entered into between the Company and Datang Finance.

 

FINANCIAL SERVICES AGREEMENT

 

Date

28 August 2008

Parties

(i)             the Company; and

(ii)            Datang Finance

 

Major Terms

 

1.  the services to be provided by Datang Finance to the Group include conducting financial and financing consultation, credit certification and other relevant advisory and agency services; provision of assistance to the Group in the receipt and payment of transaction proceeds; approved insurance agency services; provision of guarantees to the Group; conducting entrusted loans and entrusted investment services for the members of the Group; conducting bill acceptance and discount services for the Group; conducting transfer and relevant settlement services and planning of settlement scheme for the members of the Group; deposit services; financial services for the members of the Group such as loans and finance leasing; underwriting services for the issuance of corporate bonds to the Group.

 

2.   Datang Finance has agreed to provide financial services other than those in 1 above to the Group at the Company’s request or instruction provided that Datang Finance has obtained the relevant approval from the CBRC.

 

3.   Datang Finance has undertaken to adhere to the principles below in providing the afore-mentioned financial services to the Group:

 

(1)    the interest rate for the Group's deposits with Datang Finance shall be fixed as the deposit interest rate as announced by the PBOC from time to time;

 

(2)    the interest rate for loans granted to the Group by Datang Finance shall be the base lending rate as announced by the PBOC from time to time less 10% of such rate; and

 

(3)    the fees charged by Datang Finance for the provision of the other financial services to the Group other than deposits and loans services shall not be higher than the rate charged by the other financial institutions for the same type of services.

4.   The Group, with information of market rates and in view of its own interests, has the unilateral right to determine whether or not to maintain business relationship with Datang Finance, and may obtain relevant financial services from other financial institutions in addition to those provided under the Financial Services Agreement in accordance with practicable situations.

5.   Datang Finance should ensure the stable operation of its fund management system to safeguard the funds, and to monitor the credit risk so as to satisfy the payments needs of the Group.

 

 

 

6.   In respect of the provision of the loan services under the Financial Services Agreement, Datang Finance will grant integrated credit facilities of RMB4.5 billion to the Group for each of the three years ending 31 December 2008, 31 December 2009 and 31 December 2010. In this regard, Datang Finance will not conduct any individual examination procedure for each case of use and withdrawal of the facilities by the Group within the limit of the integrated credit facilities, and will directly complete procedures for such uses and withdrawals.

7.   In respect of the provision of the deposit services under the Financial Services Agreement, the upper limit of the average daily deposit balance (including any interest accrued therefrom) for the Group's deposits with Datang Finance is RMB4.5 billion for each of the three years ending 31 December 2008, 31 December 2009 and 31 December 2010.

8.   The term of the Financial Services Agreement shall be three years, i.e. from 1 January 2008 to 31 December 2010.

The provision of the deposit services by Datang Finance to the Group under the Financial Services Agreement has commenced from 1 January 2008 and the average daily deposit balance (including any interest accrued therefrom) did not exceed the upper limit of RMB4.5 billion as specified in the Financial Services Agreement for the period from 1 January 2008 up to the date of this announcement. The Company recognizes that the value of such transactions conducted by the Group during the period from 1 January 2008 up to the date of this announcement has exceeded the threshold which requires the approval of the independent Shareholders under Rule 14A.34 of the Listing Rules, and as such were conducted without complying with the relevant reporting, announcement and independent shareholders’ approval requirements under Chapter14A of the Listing Rules.

 

Capital Risk Control Measures

 

1.   Datang Finance will ensure the safe and stable operation of fund management information system, which has undergone the security test in respect of connection to the online commercial banking and has reached the national security standards for commercial banks. The system is equipped with the mode awarded with CA safety certificate to secure the funds of the Group.

2.   Datang Finance will ensure that it is in strict compliance with the risk monitoring indicators for financial institutions issued by the CBRC and that its major regulatory indicators such as gearing ratio and liquidity ratio will also comply with the requirement by the CBRC.

 

 

 

 

3.   Any balance in the Group's deposits (after deducting the amount used for making entrusted loans and the loans made to the Group by Datang Finance) will be redeposited into one or more commercial banks in the PRC. The interests for the Group’s call deposits will be settled at 1.53% as agreed between Datang Finance and the Group, and such interest rate is higher than the interest rate for call deposits (at 0.72% currently) which the Group secures from other PRC commercial banks currently.

4.   A report on the status of the Group's deposits with Datang Finance will be delivered by Datang Finance to the chief financial officer of the Company before 10 a.m. of each business day to enable the chief financial officer of the Company to monitor and ensure that the average daily deposit balance (including any interest accrued therefrom) for the Group's deposits with Datang Finance does not exceed the upper limit of RMB4.5 billion at any time.

5.   A copy of every regulatory report submitted by Datang Finance to the CBRC will be provided to and reviewed by the senior management of the Company, including the relevant executive Director(s).

6.   The financial statements of Datang Finance for each month will be provided to and reviewed by the senior management of the Company, including the relevant executive Director(s), on the fifth working day of the following month.

 

The Directors (including the independent non-executive Directors) consider that the above capital risk control measures are adequate to cover the risks involved in depositing funds with Datang Finance.

BENEFITS OF ENTERING INTO THE FINANCIAL SERVICES AGREEMENT

 

1.   The rates on loans and deposits to be offered by Datang Finance to the Group will be equal to or more favourable than those offered by commercial banks in the PRC.

2.   Datang Finance is regulated by the PBOC and the CBRC and provides its services in accordance with the rules and operational requirements of these regulatory authorities. In addition, capital risks are reduced through the introduction of the risk control measures stipulated in the Financial Services Agreement.

3.   It is beneficial for the settlement operations for the members of the Group, strengthening the Group’s capital management and control in order to mitigate and avert operating risks.

4.   It will reduce the time of capital in transit for the Group. It will also accelerate the turnover of cash flow and reduce transaction costs and expenses, thereby further enhancing the quality and efficiency of capital utilisation.

 

5.   This also provides diversified financial services in broader areas for the Group, which is in line with the interests of the Company and the Shareholders.

 

6.   Pursuant to the relevant regulations of the PBOC, the China Securities Regulatory Commission and the CBRC, the customers of Datang Finance are limited to entities within CDC and its subsidiaries, thereby reducing the risks that Datang Finance may otherwise be exposed to if its customers include other entities unrelated to CDC.

 

PROPOSED CAPS FOR FINANCIAL SERVICES AND RATIONALE

 

Deposit Services:

 

The Company estimates that the proposed caps for the balance of the average daily deposit balance (including any interest accrued therefrom) with Datang Finance for each of the three years ending 31 December 2008, 31 December 2009 and 31 December 2010 is RMB4.5 billion, after taking into account of:

 

(1)   In order to strengthen the centralised management of funds and monitor the use of funds, the Group will roll out a “funding pool” platform with the assistance of Datang Finance in 2008. Such platform amasses the funds of the Group and enables loans to be granted within the Group by capitalising on the leeway arising from the difference in the time for receipt and payment of funds of the members of the Group, with an aim to support the development of the Group.

 

The Company intended to commence this plan after entering into the financial services agreement with Datang Finance in 2007. However, during the process of implementation at the level of the Group, problems of coordination with other banks where the Subsidiaries of the Company placed their deposits were encountered. As such, the Company requested the members of the Group to gradually transfer their deposit funds to Datang Finance without affecting the relationships with such banks. After taking into account the above issues, the Company set the average daily deposit balance at RMB1.3 billion in the financial services agreement entered into with Datang Finance in 2007.

 

Since 2008, the competitiveness of the terms offered by Datang Finance to the Group in respect of deposits, loans and funds settlement became more apparent in view of the tightened monetary policies adopted by the PRC government. It was especially rare to have the benefit of the downward adjustment of 10% with respect to the loan rate provided by Datang Finance to the Group under the current market environment. Each member of the Group wishes to place its deposits, make loans and carry out settlements at Datang Finance with a view to reduce the cost of funds. Considering that the proportion of deposit amount at Datang Finance to their respective total bank balance will increase in 2008 for these members of the Group who have opened accounts at Datang Finance, and that the number of new accounts the Group opened at Datang Finance will increase in line with the Group’s business development, the Group expects that the number of bank accounts will increase from 10 in late 2007 to more than 30 by the end of 2008.

 

Datang Finance is under the direct supervision of Beijing Bureau of the CBRC and it has been maintaining satisfactory operating results and financial position with good risks control and well-regulated management in the past three years. The safety standards of its settlement system reach the standards of domestic commercial banks. The collaboration between the Company and Datang Finance may reduce finance costs, increase interest income of deposits, lower settlement costs and control risks.

 

(2)   Based on the average daily deposit balance of RMB4.5 billion for the Group's deposits with Datang Finance, as interest rate for call deposits (1.53%) at Datang Finance is 0.81% higher than that of other commercial banks in the PRC (0.72%), it is expected that income from deposit interest of the Group will increase by RMB36.45 million annually. These deposits will be used for internal channelling and provisions of the Group so as to reduce the overall level of loans of the Group.

 

(3) In respect of the Group’s funds settlement business at Datang Finance, settlement expenses will be undertaken by Datang Finance while the Group has no obligations to pay for the settlement expenses to Datang Finance.

 

(4) Datang Finance undertakes the following: other than contributing to the deposit reserve of PBOC, the deposits of the Group will only be used for internal channelling of funds and provisions within the Group to ensure that no appropriation of the Group’s funds by major shareholder should occur; and

 

(5) CDC undertakes the following to the CBRC: in the event that Datang Finance is in urgent difficulty in making payment, CDC will raise Datang Finance’s capital accordingly based on the actual need. The Directors (excluding the independent non-executive Directors, whose views will be contained in the circular after considering the advice from the independent financial advisor) consider that the above proposed cap is fair and reasonable.

The Company confirms that pursuant to the financial services agreement dated 10 May 2007 entered into between the Company and Datang Finance, the upper limit of the average daily deposit for the Group with Datang Finance in 2007 was RMB1.3 billion.The average daily deposit balance (including any interest accrued therefrom) of the Company with Datang Finance for the year ended 31 December 2007 was approximately RMB57,620,000. The deposit services are subject to the annual review requirement under the Listing Rules.

 

 

 

 

Loan Services:

 

In view of the loan services provided by Datang Finance to the Group are on normal commercial terms which are similar to or even more favourable than those offered from independent third parties for comparable services in the PRC, and that no security over the assets of the Group will be granted in respect of the loan services, the loan services are exempt under Rule 14A.65(4) of the Listing Rules from all reporting, announcement and independent shareholders’ approval requirements. As such, no cap has been set for such services. The Directors (including the independent non-executive Directors) consider that the loan services provided under the Financial Services Agreement are fair and reasonable and in the interest in the Shareholders as a whole.

Other Services:

 

Apart from the deposit services and the loan services, the other services which may be provided by Datang Finance to the Company are financial services, which mainly include entrusted loans services, i.e. the Company may entrust Datang Finance to provide entrusted loans to the members of the Group. The Company will comply with the applicable reporting, announcement and independent shareholders' approval requirements of the Listing Rules if such Group members are connected persons of the Company. The Company confirms that there will not be any provision of financial assistance by the Company to Datang Finance under this arrangement. The other services provided under the Financial Services Agreement will be on normal commercial terms and on terms similar to or even more favourable than those offered by independent third parties for comparable services in the PRC. The Directors (including the independent non-executive Directors) consider that the other services provided under the Financial Services Agreement are fair and reasonable and in the interest in the Shareholders as a whole.

The Company expects that each of the percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the total fees payable by the Company to Datang Finance will fall within the de minimis threshold as stipulated under Rule 14A.33(3) of the Listing Rules. The Company will comply with the reporting, announcement and independent shareholders' approval requirements of the Listing Rules if the transaction amount of the other financial services to be provided by Datang Finance to the Group under the Financial Services Agreement exceed the relevant threshold.

 

 

 

 

 

 

 

 

 

INFORMATION ON DATANG FINANCEDatang Finance is duly established in the PRC as a non-banking financial institution on 10 May 2005. The registered capital of Datang Finance is RMB500 million, of which RMB262.50 million, RMB100.0 million and RMB137.5 million were contributed by CDC, the Company and other 11 subsidiaries of the CDC, respectively, representing 52.5%, 20%, and 25%, respectively, of the registered capital of Datang Finance. The principal business of Datang Finance includes the provision of, among others, deposit services, loan services, entrusted loan services and entrusted investment services.Datang Finance commenced to provide financial services and to the Company and the Group started to deposit funds with Datang Finance from about early 2007 under the financial services agreement dated 10 May 2007 entered into between the Company and Datang Finance.Datang Finance is currently regarded as an associated company in the accounts of the Company.INFORMATION RELATING TO THE GROUPThe Group is principally engaged in the development and operation of power plants, the sale of electricity and thermal power, and the repair, testing and maintenance of power equipment and power-related technical services. The Group's main service areas are in the PRC.

 

CONTINUING CONNECTED TRANSACTIONS

CDC is a substantial shareholder of the Company pursuant to the Listing Rules which owned approximately 33.70% of the issued share capital of the Company as at the date of this announcement. Datang Finance is a Subsidiary of CDC, and is therefore a connected person of the Company. Accordingly, the Financial Services Agreement and the transactions contemplated thereunder constitute continuing connected transactions of the Company under the Listing Rules.

 

The loan services provided by Datang Finance to the Group will constitute financial assistance to be provided by a connected person for the benefit of the Group. As such services are on normal commercial terms which are similar to or even more favourable than those offered by independent third parties for comparable services in the PRC, and no security over the assets of the Group will be granted in respect of the loan services, the loan services are exempt under Rule 14A.65(4) of the Listing Rules from all reporting, announcement and independent shareholders’ approval requirements.

 

 

 

 

 

As both the asset and consideration ratios (as defined in Rule 14.07 of the Listing Rules) for the provision of deposit services under the Financial Services Agreement are more than 2.5%, the deposit services to be provided by Datang Finance to the Group are subject to the reporting, announcement and independent shareholders' approval requirements as set out in Rules 14A.45 to 14A.48 of the Listing Rules. CDC and its associates have to be abstained from voting at the EGM. The Company will 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.

 

The Company expects that each of the applicable percentage ratios (as defined in Rule 14.07 of the Listing Rules) of the total fees payable by the Company to Datang Finance in respect of the provision of other financial services by Datang Finance to the Group under the Financial Services Agreement will fall within the de minimis threshold as stipulated under Rule 14A.33(3) of the Listing Rules. The Company will comply with the reporting, announcement and independent shareholders' approval requirements of the Listing Rules if the transaction amount of the other financial services to be provided by Datang Finance to the Group under the Financial Services Agreement exceed the relevant threshold.

A circular containing details of the Financial Services Agreement, a letter from the independent board committee of the Company and a letter from the independent financial advisor, both advising in respect of the terms of the Financial Services Agreement, and the notice of the EGM will be despatched to the Shareholders as soon as practicable.

 

INDEPENDENT BOARD COMMITTEE AND INDEPENDENT FINANCIAL ADVISOR

 

An independent board committee comprising all the independent non-executive Directors (who have no material interest in the Financial Services Agreement) will be formed to advise the independent Shareholders on the terms of the Financial Services Agreement.

 

The Company will appoint an independent financial advisor to advise the independent board committee of the Company and the independent Shareholders on the terms of the Financial Services Agreement.

 

DESPATCH OF CIRCULAR

 

A circular containing details of the Financial Services Agreement, a letter from the independent board committee of the Company and a letter from the independent financial advisor, both advising in respect of the terms of the Financial Services Agreement, and the notice of the EGM will be despatched to the Shareholders as soon as practicable.

 

 

 

DEFINITIONS

In this announcement, the following expressions have the meanings set out below unless the context otherwise requires:

 

'A Shares'		the domestic ordinary shares of the Company with a nominal value of RMB1.00 each, which are listed on the Shanghai Stock Exchange
'Board'		the board of Directors
'CBRC'		China Banking Regulatory Commission (中國銀行業監督管理委員會)
'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 owned approximately 33.70% of the issued share capital of the Company as at the date of this announcement
'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 Limited and whose A Shares are listed on the Shanghai Stock Exchange
'connected person'		has the meaning ascribed to it in the Listing Rules
'Datang Finance'		China Datang Finance Co., Ltd. (中國大唐集團財務有限公司)
'Director(s)'		the director(s) of the Company
'Domestic Shares'		ordinary shares issued by the Company with a nominal value of RMB1.00 each, which are subscribed for or credited as paid up in Renminbi
“EGM”		the 2008 first extraordinary general meeting of the Company to be held to consider and approve, among others, the Financial Services Agreement
'Financial Services Agreement”		the financial services agreement entered into between Datang Finance and the Company on 28 August 2008
'Group'		the Company and its Subsidiaries
'H Shares'		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
'Listing Rules'		The Rules Governing the Listing of Securities on the Stock Exchange
“London Stock Exchange”		The London Stock Exchange Limited
'PBOC'		People's Bank of China (中國人民銀行)
'PRC'		the People's Republic of China
'RMB'		Renminbi, the lawful currency of the PRC
'Shanghai Stock Exchange'		Shanghai Stock Exchange
'Shares'		the ordinary shares of the Company with a nominal value of RMB1.00 each, comprising Domestic Shares and H Shares
'Shareholder(s)'		the holder(s) of the Share(s)
'Stock Exchange'		The Stock Exchange of Hong Kong Limited
'Subsidiary'		has the meaning ascribed to it under the Listing Rules
'%'		percentage

By Order of the Board 

Zhou Gang    

Secretary to the Board

 

Beijing, the PRC, 28 August 2008

As at the date of this announcement, the Directors are:Zhai Ruoyu, Hu Shengmu, Cao Jingshan, Fang Qinghai, Zhou Gang, Liu Haixia,Guan Tiangang, Su Tiegang, Ye Yonghui, Li Gengsheng, Xie Songlin*, Liu Chaoan*,

Yu Changchun*, Xia Qing* and Li Hengyuan*.

* Independent non-executive Directors

 

 

 

END

 

 

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