Discloseable And Connected Tr
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 accountant or other professional adviser.
If you have sold or transferred all your shares in DATANG INTERNATIONAL POWER GENERATION CO., LTD., you should at once hand this circular to the purchaser or transferee or to the bank, licensed securities dealer or other agent through whom the sale or transfer was effected for transmission to the purchaser or transferee.
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this circular, make no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this circular.
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 TRANSACTION
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 9 of this circular. A letter from the Independent Board Committee is set out on pages 10 to 11 of this circular. A letter from Mizuho Securities containing its advice to the Independent Board Committee and the Independent Shareholders is set out on pages 12 to 17 of this circular.
The Company will convene the EGM to consider and approve the Investment Agreement. The notice of EGM will be despatched to the Shareholders as soon as practicable.
4 September 2009
CONTENTS
Page
DEFINITIONS 1
LETTER FROM THE BOARD 4
LETTER FROM THE INDEPENDENT BOARD COMMITTEE 10
LETTER FROM MIZUHO SECURITIES 12
APPENDIX - GENERAL INFORMATION 18
DEFINITIONS
In this circular, unless the context otherwise requires, the following expressions have the following meanings:
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Note: Unless otherwise specified and for reference only, the conversion of Hong Kong dollars into Renminbi is based on the exchange rate of HK$1= RMB0.882 in this circular.
LETTER FROM THE BOARD
(a sino-foreign joint stock limited company incorporated in the People's Republic of China)
(Stock Code: 991)
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Executive Directors: Mr. Cao Jingshan Mr. Zhou Gang Non-executive Directors: Mr. Zhai Ruoyu (Chairman) Mr. Hu Shengmu Mr. Fang Qinghai Mr. Liu Haixia Ms. Guan Tiangang Mr. Su Tiegang Mr. Ye Yonghui Mr. Li Gengsheng Independent non-executive Directors: Mr. Xie Songlin Mr. Liu Chaoan Mr. Yu Changchun Mr. Xia Qing Mr. Li Hengyuan |
Office address: No.9 Guangningbo StreetXicheng DistrictBeijing, 100140the PRC Principal place of business in Hong Kong: c/o Stephen Mok & Co. 21/F, ICBC Tower, Citibank Plaza3 Garden Road, CentralHong Kong |
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4 September 2009 |
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To the Shareholders
Dear Sir or Madam,
DISCLOSEABLE AND CONNECTED TRANSACTION
INTRODUCTION
The Board is pleased to announce that on 14 August 2009, Energy and Chemical Company, a wholly-owned subsidiary of the Company, entered into the Investment Agreement with CDC to establish the Duolun Coal Chemical Company, for the purposes of constructing and operating Duolun Coal Chemical Project. Energy and Chemical Company and CDC agreed to contribute funds to the establishment of Duolun Coal Chemical Company in the proportions of 60% and 40%, respectively.
Since the assets and consideration ratios (as defined in Rule 14.07 of the Listing Rules) under the Investment Agreement are more than 5% but less than 25%, the Investment Agreement constitutes a discloseable transaction of the Company and is subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.
As at the Latest Practicable Date, CDC and its subsidiaries hold a total of approximately 35.60% of the issued share capital of the Company. Therefore, CDC is a connected person of the Company under the Listing Rules and the entering into the Investment Agreement constitutes a connected transaction of the Company. As each of the assets and consideration ratios (as defined in Rule 14.07 of the Listing Rules) is more than 2.5%, the 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.
The purpose of this circular is:-
1) to provide you with further details of the Investment Agreement;
2) to set out the recommendation of the Independent Board Committee in respect of the 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 Investment Agreement.#
INVESTMENT AGREEMENT
Date of the Investment Agreement
14 August 2009
Parties to the Investment Agreement
1. Energy and Chemical Company
2. CDC
MAJOR TERMS OF THE INVESTMENT AGREEMENT
Pursuant to the Investment Agreement, Energy and Chemical Company and CDC agreed to contribute by way of cash to the establishment of Duolun Coal Chemical Company in the proportions of 60% and 40%, respectively, for the purposes of constructing and operating the Duolun Coal Chemical Project.
The Duolun Coal Chemical Project involves a total investment amount of approximately RMB16.20 billion (equivalent to approximately HK$18.40 billion) which is subject to the total investment amount upon completion of the project. The ultimate registered capital of Duolun Coal Chemical Company is approximately 40% of the total investment amount of the Duolun Coal Chemical Project, which is approximately RMB6.48 billion (equivalent to approximately HK$7.35 billion).
Based on the negotiation between Energy and Chemical Company and CDC, the initial registered capital of Duolun Coal Chemical Company is approximately RMB4.05 billion (equivalent to approximately HK$4.59 billion). Energy and Chemical Company and CDC will be responsible for contributing by way of cash in the proportions of 60% and 40%, respectively, to the initial registered capital of Duolun Coal Chemical Company. As at the Latest Practicable Date, the parties to the Investment Agreement have made their respective contribution to the registered capital to Duolun Coal Chemical Company. Energy and Chemical Company's contribution to the registered capital of Duolun Coal Chemical Company will be funded by internal resources.
Both parties to the Investment Agreement agreed that they will increase the registered capital of Duolun Coal Chemical Company in stages based on the construction progress of the Duolun Coal Chemical Project. Energy and Chemical Company and CDC have the right to contribute to the increase in the capital in proportion to their respective contributions to the paid-up capital of Duolun Coal Chemical Company. In the event that there is any variation in the proportion of capital contribution to Duolun Coal Chemical Company by Energy and Chemical Company and CDC, the Company will make disclosure in accordance with the requirements of the Listing Rules as and when necessary.
Pursuant to the Investment Agreement, all funds required for the construction of the Duolun Coal Chemical Project will be funded by the registered capital of Duolun Coal Chemical Company and other financing resources in the PRC. The respective parties to the Investment Agreement agreed to, if necessary, provide guarantees to Duolun Coal Chemical Company's financing in proportion to their respective capital contributions, while Duolun Coal Chemical Company will provide a counter-guarantee with its assets and earnings or with other feasible means as a security against the guarantees to be provided by both parties to the Investment Agreement. In the event of any further capital injections or other guarantees against borrowings are required, the Company will comply with the relevant requirements under the Listing Rules.
EFFECTIVE DATE OF THE INVESTMENT AGREEMENT
The Investment Agreement will become effective once the respective parties to the Investment Agreement have obtained their respective internal approvals for the investment set out in the Investment Agreement. The Investment Agreement is still required to be approved by the Independent Shareholders pursuant to the Articles of Association and the Listing Rules.
OTHER MAJOR TERMS OF THE INVESTMENT AGREEMENT
The term of operation of Duolun Coal Chemical Company shall be 30 years from the date of issuance of the relevant business licence.
Both parties to the Investment Agreement agreed to acknowledge various preliminary works on the Duolun Coal Chemical Project, which have been developed by the Company, prior to entering into the Investment Agreement, including but not limited to all expenses incurred and agreements entered into, with a view to ensuring the continuity of the work of the project. All expenses incurred shall be audited by an independent third party who is jointly appointed by both parties to the Investment Agreement and shall be confirmed by both parties. All expenses incurred shall be reimbursed to the Company by Duolun Coal Chemical Company taking into account the time value of money (time value is calculated based on the interest rate for a 5-year long-term loan at the People's Bank of China).
INFORMATION RELATING TO DUOLUN COAL CHEMICAL COMPANY
According to the Investment Agreement, Duolun Coal Chemical Company, upon its establishment, shall construct and operate the Duolun Coal Chemical Project. The Duolun Coal Chemical Project is located in Duolun County, Xilinguole League of the Inner Mongolia Autonomous Region. The project uses the brown coal as raw materials from the East Unit 2 coal mine of Shengli Coal Mine in Inner Mongolia, which is wholly-owned by the Company. It produces chemical products with advanced technologies, including pulverised coal gasification technology, synthetic gas purification technology, large-scale methanol synthesis technology, methanol-to-propylene technology and propylene polymerisation technology. This project is expected to produce 460,000 tonnes of polypropylene per year and other by-products.
The National Development and Reform Commission in the Inner Mongolia Autonomous Region has agreed with the filing for the Duolun Coal Chemical Project. As at the end of June 2009, the Company has made a payment, in an amount of approximately RMB15.801 billion (equivalent to approximately HK$17.915 billion), to the work units principally responsible for the design, purchase of equipment and installation in relation to the construction of the Duolun Coal Chemical Project. Duolun Coal Chemical Company will become a subsidiary indirectly owned by the Company upon its establishment, and its results will be consolidated into the accounts of the Company.
INFORMATION RELATING TO ENERGY AND CHEMICAL COMPANY
Energy and Chemical Company is a wholly-owned subsidiary of the Company. 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 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, maintenance and testing of power equipment and power-related technical services, with its main service areas being in the PRC.
INFORMATION RELATING TO CDC
CDC is a state-owned enterprise; its main scope of operations includes the development, investment, construction, operation and management of power energy; organisation of power (thermal) production and sales; power technology development and consultation, and so forth.
REASONS FOR AND BENEFITS OF ENTERING INTO THE INVESTMENT AGREEMENT
The Company has an objective of diversifying its business structure development. The Company's investment in construction of the Duolun Coal Chemical Project through its wholly-owned subsidiary is based on the Company's strategic initiatives for future development. This project will enable the Company to develop in the coal chemical arena. The Duolun Coal Chemical Project will utilise the brown coal as main raw materials mined at the East Unit 2 coal mine of Shengli Coal Mine, which is wholly-owned by the Company. Brown coal is suitable to be used in coal chemical operation, and therefore the brown coal from the East Unit 2 coal mine of Shengli Coal Mine can provide a reliable source of raw materials to the project with a marked cost advantage. The Duolun Coal Chemical Project is situated in an area with abundant water resources and convenient transportation facilities which will help to lower the operation costs of the Duolun Coal Chemical Project. Upon commencement of production, polypropylene, the major product of the project, will be widely used in daily consumables.
In the current domestic market, demand for polypropylene, the major product in the Duolun Coal Chemical Project, far exceeds its supply. As polypropylene products are basically derived from the petrochemical industry, its costs and selling prices are therefore closely correlated to oil prices. In general, polypropylene prices continue to rise with surging crude oil prices. However, in the event that crude oil prices fluctuate in the future, the market prices of polypropylene may be affected, which will in turn considerably affect the future profitability of Duolun Coal Chemical Company. The Company will closely monitor the trends of crude oil prices in both the domestic and international markets, as well as leading Duolun Coal Chemical Company to achieve a stronger market risk-aversive ability. In view of the above, the Company believes that the Duolun Coal Chemical Project, upon its completion, will benefit from the growing demand for polypropylene in the domestic market. Meanwhile, it is beneficial for the Company to collaborate with CDC, the controlling shareholder of the Company, to jointly invest in establishing Duolun Coal Chemical Company for the purposes of constructing and operating the Duolun Coal Chemical Project. The Company will be able to leverage CDC's capital edge to spread investment risks. The Directors believe that the entering into the Investment Agreement will facilitate the profit growth of the Company and will be in the interest of the Shareholders as a whole.
The terms of the Investment Agreement were negotiated on an arm's length basis between both parties thereto and were determined on normal commercial terms. The Directors consider that the terms of the Investment Agreement are fair and reasonable and in the best interest of the Company and the Shareholders as a whole.
DISCLOSEABLE AND CONNECTED TRANSACTION
Since the assets and consideration ratios (as defined in Rule 14.07 of the Listing Rules) under the Investment Agreement are more than 5% but less than 25%, the Investment Agreement constitutes a discloseable transaction of the Company and is subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules.
As at the Latest Practicable Date, CDC and its subsidiaries hold a total of approximately 35.60% of the issued share capital of the Company. Therefore, CDC is a connected person of the Company under the Listing Rules and the entering into the Investment Agreement constitutes a connected transaction of the Company. As each of the assets and consideration ratios (as defined in Rule 14.07 of the Listing Rules) is more than 2.5%, the 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 transaction under the Investment Agreement (by virtue of being the principal management staff of CDC) have abstained from voting at the Board meeting for approval of the relevant transaction.
EGM
The Company will convene the EGM to consider and approve the Investment Agreement. A notice convening the EGM will be despatched to the Shareholders as soon as possible. Shareholders and their associates who have a material interest in any of the transactions shall abstain from voting in the EGM. CDC and its associates, holding approximately 35.60% of the issued share capital of the Company, have to be abstained from voting in approving the Investment Agreement at the EGM in accordance with the Listing Rules.
RECOMMENDATION
Your attention is drawn to the letter from the Independent Board Committee as set out on pages 10 to 11 of this circular which contains its recommendation to the Independent Shareholders on the terms of the 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 12 to 17 of this circular which contains, among others, its advice to the Independent Board Committee and the Independent Shareholders in relation to the terms of the Investment Agreement, the casting of votes for or against the resolution approving the Investment Agreement by poll at the EGM as well as the principal factors and reasons considered by it in concluding its advice.
The Directors consider that the transaction under the Investment Agreement is fair and reasonable and in the interest of the Shareholders and the Company as a whole and they recommend the Shareholders to vote in favour of the resolution at the EGM.
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Yours faithfully, |
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
(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
4 September 2009
To the Independent Shareholders
Dear Sir or Madam,
DISCLOSEABLE AND CONNECTED TRANSACTION
We refer to the circular issued by the Company to the shareholders dated 4 September 2009 (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 transaction contemplated under the Investment Agreement and the entering into of the Investment Agreement constitutes a discloseable and connected transaction for the Company, and is subject to the approval of the Independent Shareholders at the EGM.
We have been appointed as the Independent Board Committee to consider the terms of the Investment Agreement and to advise the Independent Shareholders in connection with the Investment Agreement as to whether, in our opinion, its terms are fair and reasonable and whether the Investment Agreement is in the interests of the Company and the shareholders as a whole. Mizuho Securities has been appointed as the independent financial adviser to advise us in this respect.
We wish to draw your attention to the letter from the Board and the letter from Mizuho Securities as set out in the Circular. Having considered the principal factors and reasons considered by, and the advice of, Mizuho Securities as set out in its letter of advice, we consider that the Investment Agreement is on normal commercial terms, and that the Investment Agreement is in the best interests of the Company and the Shareholders as a whole.
We also consider that the terms of the Investment Agreement are fair and reasonable. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to approve the Investment Agreement at the EGM.
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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 Investment Agreement, which has been prepared for the purpose of inclusion in this circular.
4 September 2009
To the Independent Board Committee
and Independent Shareholders
Datang International Power Generation Co., Ltd.
Dear Sirs,
DISCLOSEABLE AND CONNECTED TRANSACTION
INTRODUCTION
We refer to our engagement as the independent financial adviser to the Independent Board Committee and Independent Shareholders in respect of the Investment Agreement. Further details of the 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 4 September 2009 (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 14 August 2009, Energy and Chemical Company, a wholly-owned subsidiary of the Company, entered into the Investment Agreement with CDC to establish the Duolun Coal Chemical Company, for the purposes of constructing and operating the Duolun Coal Chemical Project.
Since the assets and consideration ratios (as defined in Rule 14.07 of the Listing Rules) under the Investment Agreement are more than 5% but less than 25%, the Investment Agreement constitutes a discloseable transaction of the Company and is subject to the reporting and announcement requirements under Chapter 14 of the Listing Rules. As at the Latest Practicable Date, CDC and its subsidiaries hold a total of approximately 35.60% of the issued share capital of the Company. Therefore, CDC is a connected person of the Company under the Listing Rules and the entering into the Investment Agreement constitutes a connected transaction of the Company. As each of the assets and consideration ratios (as defined in Rule 14.07 of the Listing Rules) is more than 2.5%, the Investment Agreement is 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 Investment Agreement are fair and reasonable so far as the Shareholders are concerned, and, from that perspective, whether the Investment Agreement is in the interests of the Company and the Shareholders as a whole. It is not within our scope of work to opine on any other aspects of the Investment Agreement. In addition, it is not within our terms of reference to comment on the commercial merits of the 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
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, maintenance and testing of power equipment and power-related technical services, with its main service areas being in the PRC.
Information relating to CDC
CDC is a state-owned enterprise with its main scope of operations being the development, investment, construction, operation and management of power energy; organisation of power (thermal) production and sales, power technology development and consultation, and power-related technical services.
Information relating to Duolun Coal Chemical Company
According to the Investment Agreement, Duolun Coal Chemical Company, upon its establishment, shall construct and operate the Duolun Coal Chemical Project. The Duolun Coal Chemical Project is located in Duolun County, Xilinguole League of the Inner Mongolia Autonomous Region. The project uses the brown coal as raw materials from the East Unit 2 coal mine of Shengli Coal Mine in Inner Mongolia, which is wholly-owned by the Company. It produces chemical products with advanced technologies, including pulverised coal gasification technology, synthetic gas purification technology, large-scale methanol synthesis technology, methanol-to-propylene technology and propylene polymerisation technology. The project is expected to produce 460,000 tonnes of polypropylene per year and other by-products.
The National Development and Reform Commission in the Inner Mongolia Autonomous Region has agreed with the filing for the Duolun Coal Chemical Project. Up to the end of June 2009, the Company has made a payment, in an amount of approximately RMB15.801 billion (equivalent to approximately HK$17.915 billion), to the work units principally responsible for the design, purchase of equipment and installation in relation to the construction of the Duolun Coal Chemical Project. Duolun Coal Chemical Company is a subsidiary indirectly owned by the Company and its results shall be consolidated into the accounts of the Company.
2. REASONS FOR ENTERING INTO THE INVESTMENT AGREEMENT
As mentioned in the Letter from the Board, the Company has an objective of diversifying its business structure development. The Company's investment in the Duolun Coal Chemical Project will enable the Company to develop in the coal chemical arena. The Duolun Coal Chemical Project will utilise the brown coal mined at the East Unit 2 coal mine of Shengli Coal Mine, which is wholly-owned by the Company, as main raw materials. Brown coal is suitable to be used in coal chemical operation, and therefore the brown coal from the East Unit 2 coal mine of Shengli Coal Mine can provide a reliable source of raw materials to the project with a marked cost advantage. As Shengli Coal Mine is wholly-owned by the Company, apart from the synergistic benefits, the Company is in a good position in arranging the main raw materials for the project.
The Duolun Coal Chemical Project is situated in an area with abundant water resources and convenient transportation facilities which will help to lower the operation costs of the Duolun Coal Chemical Project. Upon commencement of production, polypropylene, the major product of the project, will be widely used in daily consumables. We have discussed with the Company on the assessment for the demand outlook of polypropylene in the domestic market in China and have reviewed certain market data and analysis, and noted that the current demand for polypropylene in the PRC exceeds its supply.
The Duolun Coal Chemical Project enables the Group to utilise its existing natural resource assets, i.e. the East Unit 2 coal mine of Shengli Coal Mine, and at the same time, to diversify its business into coal chemical arena. In addition, the Company will be able to leverage on CDC's capital edge and spread its investment risks associated with the Duolun Coal Chemical Project. We agree with the Directors that CDC is a preferred joint venture partner for the Duolun Coal Chemical Project given the fact 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.
3. MAJOR TERMS OF THE INVESTMENT AGREEMENT
Pursuant to the Investment Agreement, Energy and Chemical Company and CDC agreed to contribute by way of cash to the establishment of Duolun Coal Chemical Company in the proportions of 60% and 40%, respectively, for the purposes of constructing and operating the Duolun Coal Chemical Project. The Duolun Coal Chemical Project involves a total investment amount of approximately RMB16.20 billion (equivalent to approximately HK$18.40 billion) which is subject to the total investment amount upon completion of the project. The ultimate registered capital of Duolun Coal Chemical Company is approximately 40% of the total investment amount of the Duolun Coal Chemical Project, which is approximately RMB6.48 billion (equivalent to approximately HK$7.35 billion).
Based on the negotiation between Energy and Chemical Company and CDC, the initial registered capital of Duolun Coal Chemical Company is approximately RMB4.05 billion (equivalent to approximately HK$4.59 billion). Energy and Chemical Company and CDC will be responsible for contributing by way of cash in the proportions of 60% and 40%, respectively, to the initial registered capital of Duolun Coal Chemical Company. The respective parties to the Investment Agreement have contributed their respective share of the registered capital to Duolun Coal Chemical Company. As the contribution of the initial registered capital is in proportion to the shareholding ratios of the parties, we consider that such arrangement is fair and reasonable.
Both parties to the Investment Agreement agreed that they will increase the registered capital of Duolun Coal Chemical Company in stages based on the construction progress of the Duolun Coal Chemical Project. Energy and Chemical Company and CDC have the right to contribute to the increase in the capital in proportion to their respective contributions to the paid-up capital of Duolun Coal Chemical Company.
Pursuant to the Investment Agreement, all funds required for the construction of the Duolun Coal Chemical Project will be funded by the registered capital of Duolun Coal Chemical Company and other financing resources in the PRC. The respective parties to the Investment Agreement agreed to, if necessary, provide guarantees to Duolun Coal Chemical Company's financing in proportion to their respective capital contributions, while Duolun Coal Chemical Company will provide a counter-guarantee with its assets and earnings or with other feasible means as a security against the guarantees to be provided by both parties to the Investment Agreement. In the event of any further capital injections or other guarantees against borrowings are required, the Company will comply with the relevant requirements under the Listing Rules.
The term of operation of Duolun Coal Chemical Company shall be 30 years from the date of issuance of the relevant business licence.
Both parties to the Investment Agreement agreed to acknowledge various preliminary works on the Duolun Coal Chemical Project, which have been developed by the Company, prior to entering into the Investment Agreement, including but not limited to all expenses incurred and agreements entered into, with a view to ensuring the continuity of the work of the project. All expenses incurred shall be audited by an independent third party who is jointly appointed by both parties to the Investment Agreement and shall be confirmed by both parties. All expenses incurred shall be reimbursed to the Company by Duolun Coal Chemical Company taking into account the time value of money. Time value shall be calculated based on the interest rate for a 5-year long-term loan at the People's Bank of China prevailing at the time that the expenses were incurred. The Company advises us that the Group's weighted average interest rates applicable to the periods in which the expenses were incurred are generally lower than or comparable to such benchmarked interest rates. As the project is in line with the business diversification strategy of the Company and that the Company holds controlling stake in the joint venture company for undertaking the project, it is reasonable for the Company to make prior investment in the initial stage of exploring the feasibility of the project. Given the arrangements of recovering the incurred expenses by the Company described above, we consider that it is fair and reasonable for the Company to have made the payments for the project in advance.
As both parties to the Investment Agreement contribute the registered capital of and, if necessary, provide guarantees for procuring financing to Duolun Coal Chemical Company based on their respective proportional interests in the Duolun Coal Chemical Project, we are of the view that the terms of the Investment Agreement are on normal commercial terms, and are fair and reasonable as far as the interests of the Independent Shareholders are concerned.
4. WORKING CAPITAL
The agreed registered capital of Duolun Coal Chemical Company is approximately RMB6.48 billion (equivalent to approximately HK$7.35 billion). Therefore, the aggregate registered capital to be contributed by the Group would be approximately RMB3.89 billion (which is calculated based on 60% of RMB6.48 billion and equivalent to approximately HK$4.41 billion). Based on the negotiation between Energy and Chemical Company and CDC, the initial registered capital of Duolun Coal Chemical Company is approximately RMB4.05 billion (equivalent to approximately HK$4.59 billion). Therefore, the initial registered capital contributed by the Group was approximately RMB2.43 billion (which is calculated based on 60% of RMB4.05 billion and equivalent to approximately HK$2.75 billion). The Group's contribution to the initial registered capital of Duolun Coal Chemical Company has been funded by its internal resources.
We have discussed with the Company on the impact of the capital contribution pursuant to the Investment Agreement on the working capital position of the Company and have reviewed the financial statements of the Company for the six months ended 30 June 2009. In addition, we note that various preliminary works on the Duolun Coal Chemical Project have been developed by the Company, prior to entering into the Investment Agreement, with a view to ensuring the continuity of the work of the project. Up to the end of June 2009, the Company has made a payment, in an amount of approximately RMB15.801 billion (equivalent to approximately HK$17.915 billion), to the work units principally responsible for the design, purchase of equipment and installation in relation to the construction of the Duolun Coal Chemical Project. The Directors consider that the Company has sufficient resources to finance its capital contribution obligations pursuant to the Investment Agreement.
OPINION
Having considered the principal factors and reasons described above, we are of the opinion that the terms of the 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 Investment Agreement is in the interests of the Company and its shareholders as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the ordinary resolution to approve the Investment Agreement at the EGM.
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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 2008 (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:
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Notes:
1. Each of Mr. Zhai Rouyu, 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, both 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 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:
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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 2008, 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:
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(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 2008, 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, ICBC Tower, Citibank Plaza, 3 Garden 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 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, ICBC Tower, Citibank Plaza, 3 Garden Road, Central, Hong Kong during normal business hours from the date of this circular up to and including 21 September 2009.
This information is provided by RNS
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