Circular of Discloseable and Connected Transact...
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THIS CIRCULAR IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION
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If you are in doubt as to any aspect of this circular or as to the action to be taken, you should consult your
stockbroker or other registered dealer in securities, bank manager, solicitor, professional accountants or other
professional adviser.
If you have sold or transferred all your shares in Zhejiang Expressway Co., Ltd., you should at once hand this
circular with the accompanying form of proxy to the purchaser or the transferee or to the bank, stockbroker
or other agent through whom the sale or transfer was effected for transmission to the purchaser or the
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 disclaim
any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the
contents of this circular.
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ZHEJIANG EXPRESSWAY CO., LTD.
(A joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock code: 0576)
DISCLOSEABLE AND CONNECTED TRANSACTIONS
IN RELATION TO ACQUISITION OF AN AGGREGATE 76.55% EQUITY INTEREST
IN
ZHEJIANG JINHUA YONGJIN EXPRESSWAY CO., LTD.
AND
PROPOSED ISSUE OF DOMESTIC CORPORATE BONDS IN THE PRC
AND
NOTICE OF 2012 ANNUAL GENERAL MEETING
Independent Financial Adviser to
the Independent Board Committee and the Independent Shareholders of
Zhejiang Expressway Co., Ltd.
ABC International
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A letter from the Board is set out on pages 7 to 26 of this circular.
A letter from the Independent Board Committee is set out on page 27 of this circular.
A letter from ABCI Capital Limited, the Independent Financial Adviser, containing its recommendations to the
Independent Board Committee and the Independent Shareholders is set out on pages 28 to 42 of this circular.
A notice for convening the 2012 annual general meeting (the "AGM") of the Company to be held at 3 p.m. on Friday,
21 June 2013 at 12/F, Block A, Dragon Century Plaza, 1 Hangda Road, Hangzhou, Zhejiang Province, the People's
Republic of China is set out on pages 118 to 123 of this circular.
A form of proxy for use at the AGM is enclosed. Whether or not you are able to attend the meeting in person, you
are requested to complete and return the accompanying form of proxy in accordance with the instructions printed
thereon. In case of H Shares, the proxy form shall be lodged with the Company's H Shares Registrar, Computershare
Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen's Road East, Wanchai, Hong Kong,
not less than 24 hours before the time for holding the AGM (or any adjournment thereof). Completion and delivery
of the form of proxy will not preclude you from attending and voting in person at the AGM or any adjournment
thereof should you so wish.
7 May 2013
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CONTENTS
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Page
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Letter from the Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Letter from the Independent Board Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Letter from ABCI Capital Limited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Appendix I - Valuation Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Appendix II - Traffic Study Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Appendix III - Letters Relating to Discounted Future Estimated Cash Flows . . . . . . . . . . . . . . . . . 110
Appendix IV - General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Notice of AGM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118
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DEFINITIONS
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In this circular, unless the context specifies otherwise, the following expressions shall have the meanings
stated below:
"AGM" the 2012 annual general meeting of the Shareholders of the Company to be
convened for the purposes of, among other things, the approval by the
Independent Shareholders of the Acquisitions, the notice of which is set
out on pages 118 to 123 of this Circular
"Acquisitions" the proposed acquisitions by the Company of a 66.283% and a 10.267%
equity interest in the Target Company from Communications Group and
Yiwu Development, respectively, pursuant to the Acquisition Agreements
"Acquisition Agreements" the Communications Group Agreement and the Yiwu Agreement
"Ancillary Agreements" the Maintenance Work Agreement, the Service Area Operation Agreement,
the Service Area Utilities Services Agreement and the Road Clearance
and Emergency Service Agreement
"Articles of Association" the articles of association of the Company "associate(s)" has the
meaning ascribed to it under the Listing Rules "Board" the Board of
Directors
"associate(s)" has the meaning ascribed to it under the Listing Rules
"Board" the Board of Directors
"business day" any day, other than a Saturday or Sunday or a public holiday in the
PRC, on which banks are generally open for business in the PRC
"Circular" this circular to the Shareholders
"Communications Group" Zhejiang Communications Investment Group Co., Ltd., a wholly State-owned
enterprise established in the PRC, and the controlling shareholder of
the Company
"Communications Group Acquisition" the proposed sale and purchase of a 66.283% equity interest in the
Target Company pursuant to the Communications Group Agreement
"Communications Group the agreement dated 20 March 2013 entered into between the Company and
Agreement" Communications Group, pursuant to which the Company conditionally
agreed to purchase from Communications Group a 66.283% equity interest
in the Target Company
"Company" or "Zhejiang Zhejiang Expressway Co., Ltd., a joint stock limited company
Expressway" incorporated in the PRC with limited liability
"Company Law" the Company Law of the PRC
"Completion" completion of the Acquisition Agreements, or either of them (as the
context may require) in accordance with their respective terms
"connected person(s)" has the meaning ascribed to it under the Listing Rules
"controlling shareholder" has the meaning ascribed to it under the Listing Rules
"Credit Agreement" the agreement dated 8 March 2013 entered into between the
Target Company and Zhejiang Communications Finance,
pursuant to which Zhejiang Communications Finance provided to the Target
Company a loan for the maximum amount of RMB70,000,000 during the term
of the agreement
"CSRC" China Securities Regulatory Commission of the PRC
"Deloitte" Deloitte Touche Tohmatsu, the auditors of the Company
"Director(s)" the director(s) of the Company
"Domestic Corporate Bonds" domestic corporate bonds in the principal amount of up to RMB1 billion
proposed to be issued by the Company in the PRC
"Dongyang Service Area" the Dongyang service area of the Ningbo-Jinhua Expressway
"Group" the Company and its subsidiaries
"H Shares" overseas listed foreign shares in the share capital of the Company
with a nominal value of RMB1 per share, which are listed on the Main
Board of the Stock Exchange
"Hong Kong" the Hong Kong Special Administrative Region of the PRC
"HK$" Hong Kong dollars, the lawful currency of Hong Kong
"Independent Board Committee" an independent committee of the Board comprising all
independent non-executive Directors, namely, Mr. Zhang
Junsheng, Mr. Zhou Jun and Mr. Pei Ker-Wei
"Independent Financial Adviser" ABCI Capital Limited, a licensed corporation licensed to conduct
type 1 (dealing in securities) and type 6 (advising on corporate
finance) regulated activities under the SFO and the independent
financial adviser to the Independent Board Committee and the
Independent Shareholders in respect of the Acquisitions
"Independent Shareholders" Shareholders who are independent within the meaning of the relevant
provisions of the Listing Rules, and, in relation to the approval of
the Acquisitions at the AGM, means the Shareholders other than
Communications Group and its associates
"Independent Third Party" a party independent and not connected with the Company, any of its
subsidiaries or any of their respective directors or substantial
shareholders
"Jinhua Jinyong Investments" Zhejiang Jinhua Jinyong Expressway Construction Investments Co., Ltd.,
a limited liability company incorporated in the PRC and the predecessor
of the Target Company
"Jinhua Section of the the Jinhua section of the Ningbo-Jinhua Expressway, starting from
Ningbo-Jinhua Expressway" the Baifengling Tunnel between Chengzhou City and Dongyang City and
ending at Hongtangfan, Fucun Town, Jindong District, Jinhua City with
a total length of approximately 69.7 km
"Jones Lang LaSalle" Jones Lang LaSalle Corporate and Appraisal Advisory Limited, an
independent valuer appointed by the Company
"Listing Rules" Rules Governing the Listing of Securities on the Stock Exchange
"Latest Practicable Date" 3 May 2013, being the latest practicable date for ascertaining certain
information contained in this Circular
"Loans" two loans of a maximum amount of RMB170,000,000 each granted by
Communications Group and Zhejiang Communications Finance to the Target
Company pursuant to the Loan Agreements, and one loan of a maximum
amount of RMB70,000,000 granted by Zhejiang Communications Finance to
the Target Company pursuant to the Credit Agreement
"Loan Agreements" two agreements both dated 28 February 2013 entered into among the Target
Company, Communications Group and Zhejiang Communications Finance with the
same terms, pursuant to which Communications Group entrusted Zhejiang
Communications Finance to provide to the Target Company a loan for the
maximum amount of RMB170,000,000 under each agreement during the term of
the agreement
"Maintenance Work Agreement" the agreement dated 28 December 2012 entered into between the Target
Company and Zhejiang Shunchang in connection with the provision of certain
maintenance work in respect of the Jinhua Section of the Ningbo-Jinhua
Expressway to the Target Company
"New Ancillary Agreements" the New Service Area Operation Agreement and the New Service Area Utilities
Services Agreement
"New Service Area Operation the agreement to be entered into between the Target Company and Zhejiang
Agreement" Communications Investment upon completion of the Communications Group
Agreement, in connection with the operation in the Dongyang Service Area,
including, the provision of, among other things, petrol station services,
catering services, supermarket services, vehicle repair services
"New Service Area Utilities the agreement to be entered into between the Target Company and Zhejiang
Services Agreement" and Zhejiang Communications Investment upon completion of the Communications
Group Agreement, in connection with the provision of utilities facilities
and services in the Dongyang Service Area such as car park, washroom,
lounge area
"Ningbo-Jinhua Expressway" or the expressway (No. G1512) connecting Ningbo City, Shaoxing City and Jinhua
"Project Expressway" City of Zhejiang Province with a total length of 185 km
"percentage ratio" has the meaning ascribed to it under Rule 14.04(9) of the Listing Rules
"PRC" the People's Republic of China (for the purpose of this Circular, excludes
Hong Kong, Macau and Taiwan)
"PRC Domestic Valuer" the PRC qualified domestic valuer appointed by the Communications Group
"PRC Valuation Report" the valuation report prepared by the PRC Domestic Valuer and commissioned
by the Communications Group in respect of the Target Company
"RMB" Renminbi, the lawful currency of the PRC
"Road Clearance and Emergency the agreement dated 15 December 2011 entered into between the Target Company
Service Agreement" and Zhejiang Communications Hangjinqu Jinhua Management Office, in
connection with the provision of certain road clearance and emergency
service in respect of the Jinhua Section of the Ningbo-Jinhua Expressway
to the Target Company
"Securities Law" the Securities Law of the PRC
"Service Area Operation Agreement" the agreement dated 30 December 2010 entered into between the Target Company
and Zhejiang Communications Investment, in connection with the operation in
the Dongyang Service Area, including, the provision of, among other things,
petrol station services, catering services, supermarket services, vehicle
repair services
"Service Area Utilities the agreement dated 30 December 2010 entered into between the Target Company
Services Agreement" and Zhejiang Communications Investment, in connection with the provision of
utilities facilities and services in the Dongyang Service Area such as car
park, washroom, lounge area
"SFO" Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong)
"Shareholder(s)" holder(s) of the share(s) of the Company
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"subsidiary(ies)" has the meaning ascribed to it under the Listing Rules
"Target Company" or Zhejiang Jinhua Yongjin Expressway Co., Ltd., a limited liability company
"Jinhua Yongjin" incorporated in the PRC and owned as to 66.283%, 23.45% and 10.267% by
Communications Group, the Company and Yiwu Development respectively
"Tentative Methods" the Tentative Methods on Issue of Corporate Bonds promulgated by the CSRC
"Traffic Study Report" the traffic and toll revenue forecasts report dated March 2013 prepared
by Wilbur Smith in respect of the traffic and toll revenue study of the
Jinhua Section of the Ningbo-Jinhua Expressway
"Valuation Date" 30 September 2012, the valuation date adopted in the Valuation Report
"Valuation Report" the valuation report dated 19 March 2013 prepared by Jones Lang LaSalle
and commissioned by the Company in respect of the Target Company
"Wilbur Smith" or "consulting firm" Wilbur Smith Associates, an independent traffic consultant appointed by
the Company
"Yiwu Acquisition" the proposed sale and purchase of a 10.267% equity interest in the Target
Company pursuant to the Yiwu Agreement
"Yiwu Agreement" the agreement dated 20 March 2013 entered into between the Company and
Yiwu Development, pursuant to which the Company has conditionally agreed
to purchase from Yiwu Development a 10.267% equity interest in the
Target Company
"Yiwu Development" Yiwu Communications Development Co., Ltd., a limited liability company
incorporated in the PRC and an Independent Third Party
"Yiwu Investments" Yiwu State-owned Assets Investments Holdings Co., Ltd., a limited liability
company incorporated in the PRC and the predecessor of Yiwu Operations
"Yiwu Operations" Yiwu State-owned Assets Operations Co., Ltd., a limited liability company
incorporated in the PRC and an Independent Third Party
"Zhejiang Communications Zhejiang Communications Investment Group Finance Co., Ltd.),
Finance" a 60% owned subsidiary of the Communications Group
"Zhejiang Communications Zhejiang Communications Investment Group Co., Ltd. Hangjinqu Branch Jinhua
Hangjinqu Jinhua Management Office, the Jinhua Management, the Jinhua Management Office
Management Office" of the Hangjinqu Branch of Communications Group
"Zhejiang Communications Zhejiang Communications Investment Group Industrial Development Co., Ltd.
Investment" a company incorporated in the PRC and a wholly-owned subsidiary of
Communications Group
"Zhejiang SASAC" State-owned Assets Supervision and Administration Commission of the People's
Government of Zhejiang Province of the PRC
"Zhejiang Shunchang" Zhejiang Shunchang High-grade Expressway Maintenance Co., Ltd., a company
incorporated in the PRC and an indirectly-owned subsidiary of Communications
Group
"%" per cent.
In this Circular, the translation of RMB into HK$ is based on the exchange of rate of HK$1 to RMB0.81. Such
conversion shall not be construed as a representation that amounts in RMB were or may have been converted into
HK$ using such exchange rate or any other exchange rate or at all.
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LETTER FROM THE BOARD
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ZHEJIANG EXPRESSWAY CO., LTD.
(A joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock code: 0576)
Executive Directors: Registered office in the PRC:
Mr. Zhan Xiaozhang (Chairman) 12th Floor, Block A
Ms. Luo Jianhu Dragon Century Plaza
Mr. Ding Huikang 1 Hangda Road
Hangzhou
Zhejiang Province 310007
The People's Republic of China
Non-executive Directors:
Mr. Li Zongsheng
Mr. Wang Weili
Mr. Wang Dongjie
Independent Non-executive Directors:
Mr. Zhang Junsheng
Mr. Zhou Jun
Mr. Pei Ker-wei
7 May 2013
To the Shareholders
Dear Sir or Madam,
DISCLOSEABLE AND CONNECTED TRANSACTIONS
IN RELATION TO ACQUISITION OF AN AGGREGATE 76.55% EQUITY INTEREST
IN
ZHEJIANG JINHUA YONGJIN EXPRESSWAY CO., LTD.
AND
PROPOSED ISSUE OF DOMESTIC CORPORATE BONDS IN THE PRC
AND
NOTICE OF 2012 ANNUAL GENERAL MEETING
1. INTRODUCTION
On 20 March 2013, the Board announced that the Company entered into the Communications Group Agreement with
Communications Group pursuant to which the Company conditionally agreed to purchase from Communications Group
a 66.283% equity interest in the Target Company held by Communications Group at a cash consideration of
RMB655,356,327 (equivalent to approximately HK$809,081,885), and the Yiwu Agreement with Yiwu Development
pursuant to which the Company conditionally agreed to purchase from Yiwu Development a 10.267% equity interest
in the Target Company held by Yiwu Development at a cash consideration of RMB101,512,354 (equivalent to
approximately HK$125,323,894).
As at the Latest Practicable Date, Communications Group holds approximately 67% of the issued share capital
of the Company. By virtue of this shareholding interest, Communications Group is a substantial shareholder (as
defined in the Listing Rules) of the Company. Therefore, Communications Group is a connected person of the Company
and as a result, the Communications Group Agreement constitutes a connected transaction for the Company under
Chapter 14A of the Listing Rules. Under the terms of the Yiwu Agreement, completion of the Yiwu Agreement is
conditional upon, among other things, the prior completion of the Communications Group Agreement (but not
vice versa). Accordingly, although Yiwu Development is an Independent Third Party, Yiwu Development is also
treated as a connected person of the Company and the Yiwu Agreement also constitutes a connected transaction
for the Company under Chapter 14A of the Listing Rules. As the relevant percentage ratio for the Acquisitions
is over 5% but less than 25% (with the consideration under the Acquisitions Agreements being, whether
individually or in aggregate, more than HK$10,000,000), the Acquisitions also constitute discloseable
transactions for the Company under Chapter 14 of the Listing Rules.
On the above basis, the Acquisitions are subject to the reporting, announcement and independent
shareholders' approval requirements under Chapter 14A of the Listing Rules applicable to connected transactions,
and the reporting and announcement requirements under Chapter 14 of the Listing Rules applicable to discloseable
transactions.
As at the Latest Practicable Date, the Target Company is a party to each of the Ancillary Agreements. Upon
completion of the Communications Group Agreement, the Target Company will enter into the New Ancillary Agreements
in replacement of the respective existing Ancillary Agreements (other than the Maintenance Work Agreement which
will continue and the Road Clearance and Emergency Service Agreement which will terminate). By virtue of the
counterparties of each of the New Ancillary Agreements and the Maintenance Work Agreement being subsidiaries
(and hence associates) of Communications Group, the New Ancillary Agreements and the Maintenance Work Agreement
will each constitute a continuing connected transaction for the Company under Chapter 14A of the Listing Rules.
As each of the applicable percentage ratios under the Listing Rules for the New Ancillary Agreements and the
Maintenance Work Agreement, individually or in aggregate, is less than 0.1%, such transactions are exempt from
the reporting, announcement, annual review and independent shareholders' approval requirements under Chapter
14A of the Listing Rules.
As at the Latest Practicable Date, the Target Company is a party to each of the Loan Agreements and the
Credit Agreement pursuant to which (in the case of the Loan Agreements) Communications Group agreed to entrust
Zhejiang Communications Finance to provide, and (in the case of the Credit Agreement) Zhejiang Communications
Finance agreed to provide, to the Target Company the Loans in the total maximum amount of RMB410,000,000
(equivalent to approximately HK$506,172,840). As at the Latest Practicable Date, the Target Company has utilised
the full amount of the Loans under the Loan Agreements and the Credit Agreement.
Upon completion of the Acquisitions, the Target Company will become a wholly-owned subsidiary of the Company
and the Loan Agreements and the Credit Agreement will constitute a connected transaction for the Company under
Chapter 14A of the Listing Rules. As the Loan Agreements and the Credit Agreement will constitute financial
assistance provided by a connected person for the benefit of a wholly-owned subsidiary of the Company on normal
commercial terms where no security over the assets of the Target Company is granted in respect of the Loan
Agreements or the Credit Agreement, the transactions thereunder are exempt from the reporting, announcement,
annual review and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.
An Independent Board Committee has been formed to consider the Acquisitions, and ABCI Capital Limited has
been appointed as the Company's Independent Financial Adviser to advise the Independent Board Committee and the
Independent Shareholders as to whether the terms of the Acquisitions are fair and reasonable and whether the
Acquisitions are in the interests of the Company and the Shareholders as a whole.
On 20 March 2013, the Board further announced that on 19 March 2013, the Board approved a proposal to submit
to the Shareholders at the AGM for consideration and approval of a proposed offer and issue of Domestic Corporate
Bonds in the PRC with an aggregate principal amount of up to RMB1 billion for general working capital purposes.
The purpose of this Circular is to provide, among other things, further information about the Acquisitions
and the Acquisition Agreements, the New Ancillary Agreements and the Maintenance Work Agreement, the Loan
Agreements and the Credit Agreement, the proposed issue of Domestic Corporate Bonds, letters from the Independent
Board Committee and the Independent Financial Adviser, a notice of AGM and other information as required under
the Listing Rules.
2. DISCLOSEABLE AND CONNECTED TRANSACTIONS
(1) Communications Group Agreement
Date
20 March 2013
Parties
Vendor: Communications Group
Purchaser: The Company
Target interest to be acquired
66.283% equity interest in the Target Company
Consideration and payment terms
The consideration for the 66.283% equity interest in the Target Company is RMB655,356,327 (equivalent
to approximately HK$809,081,885), and will be payable by the Company in cash within 5 business days
after the effective date of the Communications Group Agreement.
Consideration adjustment
The consideration payable by the Company under the Communications Group Agreement was determined on
the assumption that the toll collection rights period of the Ningbo-Jinhua Expressway as finally approved
will be 25 years. As at the date of the Communications Group Agreement and the Latest Practicable Date,
the toll collection rights period of the Ningbo-Jinhua Expressway is pending final approval by the
relevant PRC governmental authorities. It is expected that such approval will be granted before 31 December
2013 and in the event that the toll collection rights period of the Ningbo-Jinhua Expressway as finally
approved is different from 25 years, Communications Group and the Company have agreed to enter into a
supplemental agreement to adjust downward the consideration with reference to the valuation of the Target
Company to be carried out by the PRC Domestic Valuer (please see paragraph (3) "Basis of consideration"
below) taking into account the difference of the toll collection rights period. In the event that the
consideration under the Communications Group Agreement is so adjusted, the Company will comply in due
course with such reporting, announcement and independent shareholders' approval requirements under Chapters
14 and 14A of the Listing Rules as may be applicable.
Conditions precedent
Completion of the Communications Group Agreement is conditional upon:
(i) approval of the Communications Group Agreement by the Board and the board of directors of
Communications Group having been obtained;
(ii) approval by the Company's Independent Shareholders of the Communications Group Acquisition
having been obtained in accordance with the Listing Rules; and
(iii) approval of the Zhejiang SASAC having been obtained in connection with the Communications
Group Agreement.
Completion of the Communications Group Agreement is not conditional upon the completion of the Yiwu
Agreement.
If any of the above conditions shall not have been fulfilled on or before 31 December 2013, either party
is entitled to terminate the Communications Group Agreement by giving written notice to the other party.
As at the Latest Practicable Date, the condition under paragraph (i) above has been satisfied and the
Company is not entitled to to waive any of above conditions under the Communications Group Agreement.
Effective date
The Communications Group Agreement will become effective upon satisfaction of all the conditions
mentioned under "Conditions precedent" above. The parties have agreed, however, that if at any
time after the Communications Group Agreement becomes effective any relevant PRC governmental
department with authority over the agreement seeks to revoke such agreement so as to render
performance of the Communications Group Agreement impossible, the parties will terminate the
Communications Group Agreement and Communications Group will be required to repay all amounts
already paid by the Company under this agreement together with interest at the prevailing bank
lending interest rate promulgated by the People's Bank of China for the same period.
Capital injection
The parties have agreed under the Communications Group Agreement that, within 120 days after
the completion of the Communications Group Agreement, the Company will inject additional capital into the
Target Company so that the Target Company can fully repay the Loans granted by Communications Group and
Zhejiang Communications Finance to the Target Company. The Communications Group Agreement does not
expressly stipulate the amount of capital injection but based on its own estimate, the Company plans
to make a capital injection of up to RMB1,400,000,000 into the Target Company so that the Target Company
will apply such capital to fully repay its interest-bearing loans (including, but not limited to, the
Loans under the Loan Agreements and the Credit Agreement to the Communications Group). The Company plans
to use its internal resources to fund such capital injection.
New Ancillary Agreements
The parties have agreed that, upon completion of the Communications Group Agreement, the Target Company
shall enter into the New Ancillary Agreements which shall replace and supersede the existing Ancillary
Agreements (other than the Maintenance Work Agreement which will continue and the Road Clearance and
Emergency Service Agreement which will terminate).
Governing law
The laws of the PRC
(2) Yiwu Agreement
Date
20 March 2013
Parties
Vendor: Yiwu Development
Purchaser: The Company
Target interest to be acquired
10.267% equity interest in the Target Company
Consideration and payment terms
The consideration for the 10.267% equity interest in the Target Company is RMB101,512,354 (equivalent
to approximately HK$125,323,894), and will be payable by the Company in cash within 5 business
days after the effective date of the Yiwu Agreement.
Consideration adjustment
The consideration payable by the Company under the Yiwu Agreement was determined on the assumption
that the toll collection rights period of the Ningbo-Jinhua Expressway as finally approved will be
25 years. As at the date of the Yiwu Agreement and the Latest Practicable Date, the toll collection
rights period of the Ningbo-Jinhua Expressway is pending final approval by the relevant PRC governmental
authorities. It is expected that such approval will be granted before 31 December 2013 and in the event
that the toll collection rights period of the Ningbo-Jinhua Expressway as finally approved is different
from 25 years, Yiwu Development and the Company have agreed to enter into a supplemental agreement
to adjust downward the consideration with reference to the valuation of the Target Company to be
carried out by the PRC Domestic Valuer (please see paragraph (3) "Basis of consideration" below) taking
into account the difference of the toll collection rights period. In the event that the consideration
under the Yiwu Agreement is so adjusted, the Company will comply in due course with such reporting,
announcement and independent shareholders' approval requirements under Chapters 14 and 14A of the
Listing Rules as may be applicable.
Conditions precedent
Completion of the Yiwu Agreement is conditional upon:
(i) the Communications Group Agreement becoming unconditional in accordance with its terms and its
prior completion;
(ii) approval of the Yiwu Agreement by both the Board and the board of directors of Yiwu Development
having been obtained;
(iii) approval by the Company's Independent Shareholders of the Yiwu Acquisition having been obtained
in accordance with the Listing Rules and approval of the Yiwu Acquisition by the shareholders
of Yiwu Development; and
(iv) approval of the Zhejiang SASAC having been obtained in connection with the Yiwu Agreement.
If any of the above conditions shall not have been fulfilled on or before 31 December 2013, either
party is entitled to terminate the Yiwu Agreement by giving written notice to the other party.
As at the Latest Practicable Date, the condition under paragraph (ii) above has been satisfied and
the Company is not entitled to waive any of above conditions under the Yiwu Agreement.
Effective date
The Yiwu Agreement will become effective upon satisfaction of all the conditions mentioned under
"Conditions precedent" above. The parties have agreed, however, that if at any time after the Yiwu
Agreement becomes effective any relevant PRC governmental department with authority over the agreement
seeks to revoke such agreement so as to render performance of the Yiwu Agreement impossible, the
parties will terminate the Yiwu Agreement and Yiwu Development will be required to repay all amounts
already paid by the Company under this agreement together with interest at the prevailing bank
lending interest rate promulgated by the People's Bank of China for the same period.
Governing law
The laws of the PRC
(3) Basis of consideration
The consideration of RMB655,356,327 (equivalent to approximately HK$809,081,885) under the Communications
Group Agreement and RMB101,512,354 (equivalent to approximately HK$125,323,894) under the Yiwu Agreement
were determined based on arm's length negotiations between the Company and Communications Group and Yiwu
Development, respectively.
A number of factors were considered by the parties when determining the consideration of the Communications
Group Agreement and the Yiwu Agreement, including, amongst others, the Valuation Report prepared by Jones
Lang LaSalle, as well as the PRC Valuation Report prepared by the PRC Domestic Valuer and commissioned by
the Communications Group pursuant to the requirements of Zhejiang SASAC and relevant PRC laws and
regulations.
The Company relied on the Valuation Report when determining the consideration under the Acquisition
Agreements, pursuant to which the appraised value of the entire equity interest of the Target Company
as at 30 September 2012 was RMB1,026,000,000. The Communications Group relied instead on the PRC Valuation
Report when determining the consideration under the Communications Group Agreement, pursuant to which the
appraised value of the entire equity interest of the Target Company as at 30 September 2012 was
RMB988,700,000. The Company did not appoint the PRC Domestic Valuer, nor was the Company involved in the
preparation of the PRC Valuation Report. The Company and Communications Group and Yiwu Development then
agreed on the final consideration payable under the Acquisition Agreements following arm's length
negotiations.
The Acquisitions constitute a transfer of State-owned assets in the PRC and therefore require the approval
by the Zhejiang SASAC in accordance with the relevant PRC laws and regulations. As at the Latest
Practicable Date, the PRC Valuation Report commissioned by the Communications Group has been submitted to
Zhejiang SASAC for registration.
(4) Principal assumptions for the income approach adopted for the Valuation Report
The appraised value of the entire equity interest of the Target Company under the Valuation Report was
prepared using the income approach based on the discounted cash flow method. As a result, such valuation
constitutes a profit forecast under Rule 14.61 of the Listing Rules. Therefore, this Circular is
subject to the requirements under Rules 14.60A and 14.62 of the Listing Rules in relation to profit
forecast.
As required under Rule 14.62(1) of the Listing Rules, details of the key assumptions used in determining
the value of the entire equity interest in the Target Company upon which the Valuation Report was issued
are set out below:
-- The projected business of the Target Company can be achieved with the effort of the management
of the Company.
-- In order to realise the growth potential of the business of the Target Company and maintain a
competitive edge, additional manpower, equipment and facilities are necessary to be employed and
that the facilities and systems of the Target Company are sufficient for future expansion.
-- There will be no material change in the existing political, legal, technological, fiscal or economic
conditions, which might adversely affect the business of the Target Company.
-- The operational and contractual terms stipulated in the relevant contracts and agreements of the Target
Company will be honoured.
-- Copies of the operating licences and company incorporation documents provided to Jones Lang LaSalle by
the Target Company are reliable and legitimate.
-- Natural weather can have an impact on toll roads, including flooding and other types of extreme
weather, which may force toll roads to close, and that no extended closure will occur to the toll
roads managed by the Target Company.
-- The accuracy of the financial and operational information provided to Jones Lang LaSalle by the Target
Company.
-- Share capital injections and shareholder's loans will be made to the Target Company when necessary.
-- Additional working capital requirement is minimal.
-- The effective income tax rate is assumed to be 25% and the Target Company is assumed to start paying
tax from 2017.
-- Interest expenses are calculated based on the long term borrowing rate of the loan agreements of the
Target Company.
-- The following assumptions in connection with depreciation were adopted:
(i) Road and Structures: traffic volume method, depreciation period of 25 years, residual value of 0%;
(ii) Buildings and Structures: unit-of-usage method, depreciation period of 26 years, residual value
of 5%;
(iii) Special Equipments: unit-of-usage method, depreciation period of 10 years, residual value of 5%;
(vi) Transportation Facilities: unit-of-usage method, depreciation period of 8 years, residual value
of 5%; and
(v) General Facilities: unit-of-usage method, depreciation period of 5 years, residual value of 5%.
-- Cost of goods sold was forecasted based on the historical average of principal business costs related
to the maintenance of road, including operating cost, road maintenance cost, system maintenance cost
and other related costs provided by Jinhua Yongjin. Each component of the cost of goods sold was
projected to be a declining percentage of Jinhua Yongjin's annual revenue based on the assumption
that Jinhua Yongjin's revenue will increase while the monetary amount of each component of the cost of
goods sold will remain relatively stable.
-- Total operating expenses include selling expenses and administrative expenses (which include
employee, administration, and depreciation and amortization fees). Based on the historical information
provided by the management of Jinhua Yongjin in relation to Jinhua Yongjin's operating expenses, the
selling expenses was forecasted to be zero, and the administrative expenses was forecasted to be 2%
of Jinhua Yongjin's annual revenue from 2012 to 2016 and 1% of Jinhua Yongjin's annual revenue from
2017 to 2030.
Deloitte, acting as the reporting accountants of the Company, has examined the calculations of the
discounted future estimated cash flows in which the Valuation Report is based, which do not involve the
adoption of accounting policies in its preparation.
The Directors confirm that the valuation of the entire equity interest of the Target Company in the Valuation
Report, which constitutes a profit forecast under Rule 14.61 of the Listing Rules, has been made after due
and careful enquiry.
Based on the opinion of Jones Lang LaSalle, the Directors consider that the assumptions used in determining
the value of the entire equity interest in the Target Company upon which the Valuation Report was issued
are fair and reasonable.
A letter from Deloitte in compliance with Rule 14.62(2) of the Listing Rules and a letter from the Board
in compliance with Rule 14.62(3) of the Listing Rules are included in Appendix III to this Circular.
To the best of the Directors' knowledge, information and belief, Deloitte is an Independent Third Party.
(5) Original cost of the 66.283% and the 10.267% equity interest in the Target Company to Communications
Group and Yiwu Development respectively
Upon establishment of Jinhua Jinyong Investments (the predecessor of the Target Company) in February
2002, its registered capital was RMB200,000,000.
In September 2002, Communications Group acquired a 58.33% equity interest in Jinhua Jinyong Investments
by contributing RMB280,000,000 to the increased registered capital of Jinhua Jinyong Investments of
RMB480,000,000. In September 2003, the name of Jinhua Jinyong Investments was changed to its present
name. In September 2004, the Target Company's registered capital was increased by RMB80,000,000 and,
not having made any further capital contribution to the Target Company, the equity interest in the
Target Company owned by Communications Group was consequently diluted to 50%. In April 2005,
the Target Company's registered capital was further increased to RMB800,000,000 and, not having made
any further capital contribution to the Target Company, the equity interest in the Target Company
owned by Communications Group was further diluted to 35%. In March 2007, the Company acquired 23.45%
equity interest in the Target Company from two former shareholders of the Target Company at a total
consideration of RMB281,400,000. In February 2009, Communications Group acquired a 30% equity
interest in the Target
Company from a former shareholder of the Target Company at a consideration of RMB240,000,000. In
June 2010, Communications Group acquired a 1.283% equity interest in the Target Company by contributing
RMB7,655,000 to the increased registered capital of the Target Company of RMB900,000,000.
Upon establishment of Jinhua Jinyong Investments (the predecessor of the Target Company) in February 2002,
Yiwu Investments (the predecessor of Yiwu Operations) acquired a 33% equity interest in Jinhua Jinyong
Investments by contributing RMB66,000,000 to its registered capital. In September 2004, Yiwu Investments
(the predecessor of Yiwu Operations) made a further capital contribution of RMB26,400,000 to the Target
Company. In April 2009, the name of Yiwu Investments was changed to its present name and in the same
year, Yiwu Operations transferred its capital contributions in the Target Company in the total amount of
RMB92,400,000 to Yiwu Development. The registered capital of the Target Company was increased as
described above and, not having made any further capital contribution to the Target Company, the
equity interest in the Target Company owned by Yiwu Development was consequently diluted to 10.267%.
3. INFORMATION ON THE TARGET COMPANY
The Target Company is a limited liability company incorporated in the PRC on 8 February 2002 and with
a registered capital of RMB900,000,000 as at the Latest Practicable Date. As at the Latest Practicable Date,
the Target Company is owned as to 66.283%, 23.45% and 10.267% by Communications Group, the Company and Yiwu
Development respectively.
The Target Company is principally engaged in the operation and management of the Jinhua Section of the
Ningbo-Jinhua Expressway. The Ningbo-Jinhua Expressway is a branch line of the Shenyang- Haikou Expressway
within the State expressway network linking the eastern and western parts of Zhejiang Province, connecting
to Hangjinqu Expressway and Ningbo Loop Expressway. Jinhua Section of the Ningbo-Jinhua Expressway, under
the Target Company's operation, is a dual four-lane expressway located in Chengzhou City, Dongyang City,
Yiwu City and Jinhua City of Zhejiang Province with a total length of approximately 69.7 km. As at the Latest
Practicable Date, the toll collection rights period of the Ningbo-Jinhua Expressway has not been finally
approved by the relevant governmental authorities and in accordance with the relevant expressway regulations
in the PRC, the toll collection rights period of an expressway shall not be more than 25 years.
Based on information provided by the Target Company, in 2012, the Jinhua Section of the Ningbo- Jinhua
Expressway recorded an average daily traffic volume of 12,084 in full-trip equivalents, while toll income
amounted to RMB231,480,990 according to audited financials statements of the Target Company prepared in
accordance with generally accepted accounting principles in the PRC by the PRC statutory auditor of the
Target Company. Based on information provided by the Target Company, for the three months ended 31 March
2013, the Jinhua Section of the Ningbo-Jinhua Expressway recorded an average daily traffic volume of 14,244
in full-trip equivalents, while toll income amounted to RMB60,158,300, which represented increases of
15.08% and 9%, respectively, compared with the same period in 2012. The Board confirms that, as advised
by Jones Lang LaSalle and Wilbur Smith respectively, there has not been any material change in the
valuation of Jinhua Yongjin in the Valuation Report and the revenue forecast in the Traffic Study Report
since the valuation date of the Valuation Report (i.e. 30 September 2012) and the forecast date of the
Traffic Study Report (i.e. January 2013).
The net asset value of the Target Company based on its audited financial statements for the years ended
31 December 2011 and 2012 prepared in accordance with generally accepted accounting principles in the PRC
by the PRC statutory auditor of the Target Company are set out below:
As at 31 December
2011 2012
RMB'000 RMB'000
(audited) (audited)
Net asset value 669,588 650,883
========= =========
Based on the information provided by the Target Company, the Target Company has a high leverage ratio. As
at 31 December 2012, the Target Company had interest bearing loans of approximately RMB1,400 million and its
financing costs for the years ended 31 December 2011 and 2012 amounted to approximately RMB87.57 million and
RMB 83.23 million, respectively. Due to its heavy financing costs, the Target Company incurred losses for the
years ended 31 December 2011 and 2012. The net profit/ (loss) before and after tax and extraordinary items of
the Target Company based on its audited financial statements for the years ended 31 December 2011 and 2012
prepared in accordance with generally accepted accounting principles in the PRC by the PRC statutory auditor
of the Target Company are set out below:
For the year ended 31 December
2011 2012
RMB'000 RMB'000
(audited) (audited)
net profit/(loss) before tax and extraordinary items -28,108 -18,704
net profit/(loss) after tax and extraordinary items -28,108 -18,704
========= =========
4. EFFECT OF THE ACQUISITIONS
Upon completion of both the Communications Group Acquisition and the Yiwu Acquisition, the Company will
beneficially own the entire equity interest in the Target Company. In the event that only the Communications
Group Acquisition is completed, the Company will beneficially own in aggregate 89.733% of the Target Company's
equity interest. In each case (assuming at least the Communications Group Acquisition is completed), the
Target Company will become a subsidiary of the Company and the accounts of the Target Company will be
consolidated into the accounts of the Company.
5. REASONS FOR AND BENEFITS OF THE ACQUISITIONS
After completion of the Acquisitions, the total length of expressways managed by the Company will increase from
approximately 389.60 km to approximately 459.35 km. The main businesses of the Company will be enhanced through the
Acquisitions which help to increase the market share and competitive strength of the Company in Zhejiang Province.
The Jinhua Section of Ningbo-Jinhua expressway connects with the Shaoxing Section of Ningbo-Jinhua Expressway
(which is managed by Shengxin Expressway Co., Ltd., in which the Company currently owns 50% equity interest),
and crosses with the Shangsan Expressway managed by the Company. The Directors believe that the Acquisitions
will facilitate the Company to better utilise its experience and advantages in toll operation and to complement
the Company's existing network of expressways, and are in line with the Company's development strategy.
6. INFORMATION ON THE COMPANY, COMMUNICATIONS GROUP AND YIWU DEVELOPMENT
The Company is a joint stock company established under the laws of the PRC with limited liability on 1 March
1997, the H Shares of which are listed on the Main Board of the Stock Exchange. It is principally engaged in
investing in, developing and operating high-grade roads in the PRC. The Group also carries on certain other
businesses such as automobile servicing, operation of gas stations and billboard advertising along expressways,
as well as securities related business.
Communications Group is a wholly State-owned enterprise established in the PRC on 29 December 2001 and is
principally engaged in a diverse range of businesses, including investment, operations, maintenance, toll
collection and ancillary services of expressways, construction and building of transportation project, ocean
and coastal transport, as well as real estate.
Based on information provided by Yiwu Development to the Company, Yiwu Development is a limited liability
company incorporated in the PRC in April 2009 and is principally engaged in the businesses of logistics, passenger
and freight carriage, construction and development of roads as well as airport management. Yiwu Development is
an Independent Third Party.
7. EXEMPT CONNECTED TRANSACTIONS AND NEW CONTINUING CONNECTED TRANSACTIONS
(1) New Continuing Connected Transactions
As at the Latest Practicable Date, the Target Company is a party to each of the Ancillary Agreements.
Since the terms of the existing Ancillary Agreements (other than the Maintenance Work Agreement) do not
conform with the requirements of Chapter 14A of the Listing Rules relating to continuing connected
transactions, including that they must be on normal commercial terms, it is proposed that, upon completion
of the Communications Group Agreement, the Road Clearance and Emergency Service Agreement will terminate
and the Target Company will enter into the New Ancillary Agreements (which comply with the relevant
Listing Rules requirements) to replace and supersede the existing Ancillary Agreements (other than the
Maintenance Work Agreement which will continue and the Road Clearance and Emergency Service Agreement which
will terminate). By virtue of the counterparties of each of the New Ancillary Agreements and the Maintenance
Work Agreement being subsidiaries (and hence associates) of Communications Group, the New Ancillary
Agreements and the Maintenance Work Agreement would have each constituted a continuing connected transaction
for the Company under Chapter 14A of the Listing Rules. As each of the applicable percentage ratios under
the Listing Rules for the New Ancillary Agreements and the Maintenance Work Agreement, individually or
in aggregate, is less than 0.1%, such transactions are exempt from the reporting, announcement, annual review
and independent shareholders' approval requirements under Chapter 14A of the Listing Rules.
A brief description of the Maintenance Work Agreement and each New Ancillary Agreement is set out below:
Maintenance Work Agreement
As at the Latest Practicable Date, the Target Company is a party to the Maintenance Work Agreement in
connection with the provision by Zhejiang Shunchang of certain maintenance work in respect of the Jinhua
Section of the Ningbo-Jinhua Expressway to the Target Company. The Maintenance Work Agreement has a term
of three years from 1 January 2013 to 31 December 2015 and the Target Company has agreed to pay an annual
fee of RMB5,366,206 (or RMB16,098,618 for all three years) for the maintenance work performed over this
period.
New Service Area Operation Agreement
Upon completion of the Communications Group Agreement, the Target Company and Zhejiang Communications
Investment will enter into the New Service Area Operation Agreement, in connection with the operation in the
Dongyang Service Area, including, the provision of, among other things, petrol station services, catering
services, supermarket services, vehicle repair services. The term of the New Service Area Operation Agreement
is for three years. Zhejiang Communications Investment will be entitled to 20% of the annual profits
recognised by it through managing the Dongyang Service Area if the amount of such profits is not more
than RMB3,762,479, and 80% of any additional profits which is more than RMB3,762,479 in that year. The
rest of the profits will be paid to the Target Company. The Target Company will not be required to make
any payment to Zhejiang Communications Investment under the New Service Area Operation Agreement.
New Service Area Utilities Services Agreement
Upon completion of the Communications Group Agreement, the Target Company and Zhejiang Communications
Investment will enter into the New Service Area Utilities Services Agreement, in connection with the provision
of utilities facilities and services in the Dongyang Service Area such as car park, washroom, lounge area.
The term of the New Service Area Utilities Services Agreement is for three years. The Target Company will be
required to pay an annual fee of RMB600,000 to Zhejiang Communications Investment for the services provided
under this agreement.
(2) Exempt Connected Transactions
Loan Agreements and Credit Agreement
As at the Latest Practicable Date, the Target Company is a party to each of the Loan Agreements and the
Credit Agreement pursuant to which (in the case of the Loan Agreements) Communications Group agreed to entrust
Zhejiang Communications Finance to provide, and (in the case of the Credit Agreement) Zhejiang Communications
Finance agreed to provide, to the Target Company the Loans in the total maximum amount of RMB410,000,000
(equivalent to approximately HK$506,172,840) at an interest rate of (in the case of the Loan Agreements)
5.24% per annum and (in the case of the Credit Agreements) 5.40% per annum respectively. The term of the
Loan Agreements is from 28 February 2013 to 10 August 2015 and they shall be repaid in full at the end of
the term. The term of the Credit Agreement is from 8 March 2013 to 7 March 2014 and it shall also be repaid
in full at the end of the term. The Target Company, with written consent of the Communications Group, may
prepay the Loan Agreements subject to the payment of applicable interests to be calculated on the basis of
the actual number of days and the amount utilised under the Loan Agreements. The Target Company may also
prepay the Credit Agreement after obtaining written consent of Zhejiang Communications Finance and subject
to the payment of applicable interests to be calculated on the basis of the actual number of days and the
amount utilised under the Credit Agreement. The Loans were granted on the credit of the Target Company and
no security was granted by the Target Company to Communications Group or Zhejiang Communications Finance to
secure the Loans.
As at the Latest Practicable Date, the Target Company has utilised the full amount of the Loans under the
Loan Agreements and the Credit Agreement.
Upon completion of the Acquisitions, the Target Company will become a wholly-owned subsidiary of the
Company and the Loan Agreements and the Credit Agreement will constitute a connected transaction for
the Company under Chapter 14A of the Listing Rules. As the Loan Agreements and the Credit Agreement
will constitute financial assistance provided by a connected person for the benefit of a wholly-owned
subsidiary of the Company on normal commercial terms where no security over the assets of the Target
Company is granted in respect of the Loan Agreements or the Credit Agreement, the transactions
thereunder are exempt from the reporting, announcement, annual review and independent shareholders'
approval requirements under Chapter 14A of the Listing Rules.
8. RELATIONSHIP BETWEEN THE PARTIES AND LISTING RULES IMPLICATIONS
As at the Latest Practicable Date, Communications Group holds approximately 67% of the issued share capital
of the Company. By virtue of this shareholding interest, Communications Group is a substantial shareholder (as
defined in the Listing Rules) of the Company. Therefore, Communications Group is a connected person of the Company
and as a result, the Communications Group Agreement constitutes a connected transaction for the Company under
Chapter 14A of the Listing Rules. Under the terms of the Yiwu Agreement, completion of the Yiwu Agreement is
conditional upon, among other things, the prior completion of the Communications Group Agreement (but not vice
versa). Accordingly, although Yiwu Development is an Independent Third Party, Yiwu Development is also treated
as a connected person of the Company and the Yiwu Agreement also constitutes a connected transaction for the
Company under Chapter 14A of the Listing Rules. As the relevant percentage ratio for the Acquisitions is over
5% but less than 25% (with the consideration under the Acquisition Agreements being, whether individually or
in aggregate, more than HK$10,000,000), the Acquisitions also constitute discloseable transactions for the
Company under Chapter 14 of the Listing Rules.
On the above basis, the Acquisitions are subject to the reporting, announcement and independent shareholders'
approval requirements under Chapter 14A of the Listing Rules applicable to connected transactions, and
reporting and announcement requirements under Chapter 14 of the Listing Rules applicable to discloseable
transactions.
None of the Directors has any material interest in the transactions contemplated under the Acquisition
Agreements or is required to abstain from voting on the relevant board resolution approving the Acquisition
Agreements and the transactions contemplated thereunder.
In view of the interest of Communications Group in the Acquisition Agreements, Communications Group and
its associates will abstain from voting at the AGM on the resolutions in relation to the Acquisition
Agreements and the transactions contemplated thereunder.
9. PROPOSED ISSUE OF DOMESTIC CORPORATE BONDS IN THE PRC
The Company announced on 20 March 2013 that on 19 March 2013, the Board approved a proposal to submit to
the Shareholders at the AGM for consideration and approval of a proposed offer and issue of Domestic Corporate
Bonds in the PRC with an aggregate principal amount of up to RMB1 billion for general working capital purposes.
According to Article 75 of the Articles of Association, the proposed issue of the Domestic Corporate Bonds
requires approval of the Shareholders by special resolution. The Company proposes to convene the AGM for
consideration and approval of the proposal.
The proposed issue of the Domestic Corporate Bonds also requires approval of the CSRC. The timing of the
proposed issue of the Domestic Corporate Bonds will depend on the timing of the CSRC approval and the conditions
of the bonds market in the PRC.
Details of the terms of the proposed Domestic Corporate Bonds as approved by the Board (which are still
subject to the approval of the Shareholders at the AGM and the approval of the CSRC) are set forth below:
(1) Issuer: The Company.
(2) Place of issue: The PRC.
(3) Aggregate principal amount: Up to RMB1 billion, which can be issued in single or
multiple tranche(s) subject to the approval of the CSRC.
Subject to the granting of authority by the Shareholders to the
Board at the AGM, details of issue size and tranches are intended
to be determined by the Board according to the financial
requirements of the Company and market conditions prevailing at
the time of issue.
(4) Arrangement for issue to The Domestic Corporate Bonds will not be offered to the
Shareholders: Shareholders on a preferential basis.
(5) Maturity: Up to 10 years, the Domestic Corporate Bonds may be issued in
single or multiple tranche(s) with different maturity. Subject to
the granting of authority by the Shareholders to the Board at the
AGM, the maturity and the issue size of each tranche are intended
to be determined by the Board according to the requirements of the
Company and market conditions prevailing at the time of issue.
(6) Use of proceeds: The proceeds from the proposed issue of the Domestic Corporate Bonds
are intended to be used by the Company to improve its capital structure
and to supplement the working capital of the Company. Subject to the
granting of authority by the Shareholders to the Board at the AGM,
details of the use of proceeds are intended to be determined by the
Board according to the financial conditions of the Company.
(7) Listing: An application for listing and trading of the Domestic Corporate
Bonds (subject to the fulfillment of relevant listing requirements)
shall be made with the Shanghai Stock Exchange as soon as practicable
following the completion of the proposed issue of the Domestic Corporate
Bonds. Subject to the approval of relevant regulatory authorities,
applications for listing and trading of the Domestic Corporate Bonds
may be made with other stock exchange(s) permitted by applicable laws.
(8) Term of validity of the The proposed Shareholders' resolutions to be passed at the AGM in
resolutions: respect of the proposed issue of Domestic Corporate Bonds, if
passed, shall be valid for 30 months from the date of passing of the
relevant resolutions at the AGM.
Subject to the approval and authorisation by the Shareholders of the proposed issue of the Domestic Corporate
Bonds at the AGM, the interest rate of the Domestic Corporate Bonds will be determined by the Board through a
book-building process with reference to the prevailing conditions of the bond market in the PRC. The Domestic
Corporate Bonds proposed to be issued are not convertible into shares of the Company.
It is proposed to be submitted to the Shareholders for consideration and approval the granting of authority
to the Board to deal with all matters relating to the proposed issue and listing of the Domestic Corporate Bonds
in the absolute discretion of the Board in accordance with the applicable laws and regulations (including, among
others, the Company Law, the Securities Law and the Tentative Methods) and the Articles of Association, including,
but not limited to the following:
(1) to formulate specific plan and terms for the issue of the Domestic Corporate Bonds according to the
requirements of the relevant laws and regulations, the Shareholders' resolutions passed at the AGM and market
conditions, including but not limited to the issue size, maturity, type of bonds, interest rate and method
of determination, timing of issue (including whether to issue in tranches and their respective size and
maturity), security plan, whether to allow repurchase and redemption, use of proceeds, rating, subscription
method, term and method of repayment of principal and interests, listing and all other matters relating
to the issue and listing of the Domestic Corporate Bonds;
(2) to appoint intermediaries in connection with the listing applications of the Domestic Corporate Bonds and
the actual listing of the bonds; including but is not limited to the authorisation, execution, performance,
variation and completion of all necessary documents, contracts and agreements (including, among others,
prospectus, subscription agreement, underwriting agreement, trustee deed, listing agreement, announcements
and other legal documents) and other relevant disclosures as required by relevant laws and regulations;
(3) to appoint a trustee for the proposed issue of the Domestic Corporate Bonds, to execute relevant trust
deed and to determine rules for meetings of holders of the Domestic Corporate Bonds;
(4) subject to any matters which require Shareholders' approval, to make appropriate adjustments to the proposal
for the proposed issue and terms of the Domestic Corporate Bonds in accordance with the comments (if any)
from the relevant PRC regulatory authorities; and
(5) in the event of the Company's expected failure to repay the principal and interests of the Domestic
Corporate Bonds as scheduled or when such amounts fall due, to implement, as a minimum, the following
measures:
(a) not to declare any profit distributions to the Shareholders;
(b) to postpone the implementation of capital expenditure projects such as material investments,
acquisitions or mergers;
(c) to reduce or discontinue the payment of salaries and bonuses of the Directors and senior
management of the Company; and
(d) not to transfer or second away any key officers of the Company;
(6) to deal with any other matters relating to the proposed issue and listing of the Domestic Corporate Bonds;
(7) subject to the term of validity of the Shareholders' resolutions as mentioned above, the authority
granted to the Board to deal with the above matters will take effect from the date of the passing of
the relevant Shareholders' resolution at the AGM until all the authorized matters in relation to the
proposed issue of the Domestic Corporate Bonds have been completed; and
(8) at the same time as the authorities mentioned under paragraphs (1) - (6) above are granted, the Board
shall be authorised to delegate to Mr. Wu Junyi, the chief financial officer of the Company, the powers
to deal with all specific matters relating to the proposed issue and listing of the Domestic Corporate
Bonds within the limit of the authorities granted to the Board as mentioned above.
The Board believes that the proposed issue of the Domestic Corporate Bonds will provide the Company with a
further source of funding. The Board considers that the proposed issue of the Domestic Corporate Bonds will
improve the debt structure of the Company and increase the general working capital of the Company.
10. THE AGM
You will find on pages 118 to 123 of this Circular a notice of the AGM to be held at 12/F, Block A,
Dragon Century Plaza, 1 Hangda Road, Hangzhou, Zhejiang Province, the PRC on Friday, 21 June 2013 at 3 p.m.
A form of proxy for use at the AGM is enclosed. Whether or not you are able to attend the meeting in person,
you are requested to complete and return the accompanying form of proxy in accordance with the instructions
printed thereon. In case of H Shares, the proxy form shall be lodged with the Company's H Shares Registrar,
Computershare Hong Kong Investor Services Limited, at 17M Floor, Hopewell Centre, 183 Queen's Road East,
Wanchai, Hong Kong, not less than 24 hours before the time for holding the AGM (or any adjournment thereof).
Completion and delivery of the form of proxy will not preclude you from attending and voting in person at the
AGM or any adjournment thereof should you so wish.
11. CONCLUSIONS AND RECOMMENDATIONS
The Independent Board Committee comprising all the independent non-executive Directors, namely, Mr. Zhang
Junsheng, Mr. Zhou Jun and Mr. Pei Ker-Wei, has been formed to consider the Acquisitions, and ABCI Capital Limited
has been appointed as the Company's Independent Financial Adviser to advise the Independent Board Committee and
the Independent Shareholders as to whether the terms of the Acquisitions are fair and reasonable and whether the
Acquisitions are in the interests of the Company and the Shareholders as a whole. The Directors (excluding the
members of the Independent Board Committee, whose views are set out in the letter from the Independent Board
Committee on page 27 of this Circular) consider that the terms of the Acquisitions are on normal commercial
terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.
The text of the letter from Independent Board Committee is set out on page 27 of this Circular and the text
of the letter from the Independent Financial Adviser containing its advice is set out on pages 28 to 42 of this
Circular.
The Directors (including the independent non-executive Directors) consider that the terms of the proposed
issue of Domestic Corporate Bonds are on normal commercial terms and are fair and reasonable and in the interests
of the Company and the Shareholders as a whole. Accordingly, the Directors (including the independent
non-executive Directors) recommend the Shareholders to vote in favour of the relevant resolution to approve the
proposed issue of Domestic Corporate Bonds and the terms thereof at the AGM.
12. OTHER INFORMATION
A report on the valuation of the entire equity interest in the Target Company has been prepared by Jones Lang
LaSalle and is set out in Appendix I of this Circular.
A report on the traffic and revenue of the Jinhua Section of Ningbo-Jinhua Expressway has been prepared by
Wilbur Smith and is set out in Appendix II of this Circular.
As the appraised value of the entire equity interest of the Target Company under the Valuation Report was
prepared through the income approach based on the discounted cash flow method, such valuation constitutes a profit
forecast under Rule 14.61 of the Listing Rules. A letter from the Board in compliance with Rule 14.62(3) of the
Listing Rules and a letter from Deloitte in compliance with Rule 14.62(2) of the Listing Rules are included
in Appendix III of this Circular.
Your attention is also drawn to the letter from the Independent Board Committee, the letter from the
Independent Financial Adviser and the additional information set out in the appendices to this Circular and the
notice of the AGM.
Yours faithfully, For and on behalf of
Zhejiang Expressway Co., Ltd.
Zhan Xiaozhang
Chairman
--------------------------------------------------------------------------------------------------------------------
LETTER FROM THE INDEPENDENT BOARD COMMITTEE
--------------------------------------------------------------------------------------------------------------------
ZHEJIANG EXPRESSWAY CO., LTD.
(A joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock code: 0576)
7 May 2013
To the Independent Shareholders
Dear Sir or Madam,
DISCLOSEABLE AND CONNECTED TRANSACTIONS
IN RELATION TO ACQUISITION OF AN AGGREGATE 76.55% EQUITY INTEREST
IN
ZHEJIANG JINHUA YONGJIN EXPRESSWAY CO., LTD.
AND
NOTICE OF 2012 ANNUAL GENERAL MEETING
We refer to the circular of the Company dated 7 May 2013 to the Shareholders (the "Circular"), of which this
letter forms part. Terms defined in the Circular shall have the same meanings when used in this letter, unless
the context otherwise requires.
We have been appointed by the Board as members of the Independent Board Committee to advise you as to the
fairness and reasonableness of the terms of the Acquisition Agreements and whether the Acquisitions are in the
interests of the Company and the Shareholders as a whole. ABCI Capital Limited has been appointed as the
independent financial adviser to advise you and us in this regard. Details of the recommendations from ABCI
Capital Limited are set out in its letter of advice on pages 28 to 42 of the Circular.
Your attention is also drawn to the letter from the Board set out on pages 7 to 26 of the Circular and the
additional information set out in the appendices to the Circular.
Having considered the terms of the Acquisition Agreements, and taken into account the advice from ABCI
Capital Limited and in particular the principal factors and reasons considered by ABCI Capital Limited as
set out in its letter of advice, we are of the view that (i) the terms of the Communications Group Agreement
and the Yiwu Agreement are on normal commercial terms and are fair and reasonable so far as the Independent
Shareholders are concerned; and (ii) the Communications Group Acquisition and Yiwu Acquisition are in the
ordinary and usual course of business of the Company and in the interests of the Company and the Shareholders
as a whole. Accordingly, we recommend the Independent Shareholders to vote in favour of the relevant resolution
to approve the Communications Group Agreement and the Yiwu Agreement and the transactions contemplated
thereunder at the AGM.
Yours faithfully,
Independent Board Committee
Mr. Zhang Junsheng Mr. Zhou Jun Mr. Pei Ker-wei
Independent non-executive Independent non-executive Independent non-executive
Director Director Director
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LETTER FROM ABCI CAPITAL LIMITED
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The following is the text of a letter of advice from the Independent Financial Adviser to the Independent
Board Committee and the Independent Shareholders relating to the terms of the Communications Group Agreement
and the Yiwu Agreement and the transactions contemplated thereunder, prepared for the purpose of incorporation
in this Circular:
ABC INTERNATIONAL
7 May 2013
To the Independent Board Committee and the Independent Shareholders of
Zhejiang Expressway Co., Ltd.
Dear Sirs,
DISCLOSEABLE AND CONNECTED TRANSACTIONS
IN RELATION TO ACQUISITION OF 76.55% OF EQUITY INTERESTS IN
ZHEJIANG JINHUA YONGJIN EXPRESSWAY CO., LTD.
INTRODUCTION
We refer to our engagement as the independent financial adviser to advise the Independent Board Committee
and Independent Shareholders in respect of the entering into of the Communications Group Agreement and the
Yiwu Agreement and the transactions contemplated thereunder, details of which are set out in the Letter from
the Board contained in the circular of the Company dated 7 May 2013 (the "Circular") of which this letter
forms part. Unless the context requires otherwise, capitalized terms used in this letter shall have the same
meanings as those defined in the Circular.
On 20 March 2013, the Board made an announcement (the "Announcement") regarding the Company entered into
the Communications Group Agreement with Communications Group pursuant to which the Company conditionally agreed
to purchase from Communications Group a 66.283% equity interest in the Target Company held by Communications
Group at a cash consideration of RMB655,356,327 (equivalent to approximately HK$809,081,885). On the same date,
the Company entered into the Yiwu Agreement with Yiwu Development pursuant to which the Company conditionally
agreed to purchase from Yiwu Development a 10.267% equity interest in the Target Company held by Yiwu Development
at a cash consideration of RMB101,512,354 (equivalent to approximately HK$125,323,894). The Company currently
owns a 23.45% equity interest in the Target Company. Upon completion of both the Communications Group Acquisition
and the Yiwu Acquisition, the Target Company will become a wholly-owned subsidiary of the Company. In the event
that only the Communications Group Acquisition were completed, the Company would beneficially own in aggregate
89.733% of the Target Company's equity interest.
As at the Latest Practicable Date, Communications Group holds approximately 67% of the issued share capital
of the Company. By virtue of this shareholding interest, Communications Group is a substantial shareholder
(as defined in the Listing Rules) of the Company. Therefore, Communications Group is a connected person of
the Company and as a result, the Communications Group Acquisition constitutes a connected transaction for the
Company under Chapter 14A of the Listing Rules. Under the terms of the Yiwu Agreement, completion of the Yiwu
Agreement is conditional upon, among other things, prior completion of the Communications Group Agreement.
Accordingly, Yiwu Development is also treated as a connected person of the Company and the Yiwu Acquisition
also constitutes a connected transaction under Chapter 14A of the Listing Rules.
As the relevant percentage ratio for the Acquisitions is over 5% but less than 25%, the Acquisitions also
constitute discloseable transactions for the Company under the Listing Rules. On the above basis, the
Communications Group Acquisition and the Yiwu Acquisition are subject to the reporting, announcement and
independent shareholders' approval requirements under Chapter 14A of the Listing Rules. In view of the interest
of Communications Group in the Acquisition Agreements, Communications Group and its respective associates will
abstain from voting at the AGM on the resolutions in relation to the Communications Group Agreement and the
Yiwu Agreement and the transactions contemplated thereunder.
The Independent Board Committee comprising all of the independent non-executive Directors, namely Mr. Zhang
Junsheng, Mr. Zhou Jun and Mr. Pei Ker-Wei, has been established to make recommendation to the Independent
Shareholders in relation to the Communications Group Agreement and the Yiwu Agreement and the transactions
contemplated thereunder. We have been appointed to advise the Independent Board Committee and the Independent
Shareholders as to whether the Communications Group Agreement and the Yiwu Agreement and the transactions
contemplated thereunder are on normal commercial terms, fair and reasonable so far as the Independent
Shareholders are concerned and in the interests of the Company and the Shareholders as a whole.
BASIS OF OUR OPINION
In formulating our advice and recommendations, we have relied on the accuracy of the information and facts
supplied, and the opinions expressed by the Company, its Directors and its management to us. We have assumed
that all statements of belief and intention made by the Directors and the management of the Company were made
after due enquiry. We have also assumed that all information, representations and opinion made were true,
accurate and complete at the time they were made and continued to be true at the date of the Circular and will
remain so up to the time of the AGM. We have no reason to doubt the truth, accuracy and completeness of the
information and representations provided to us by the Company, its Directors and its management, and we have
been advised by the Directors and the management of the Company that no material facts have been omitted from
the information provided.
We consider that we have reviewed sufficient information to reach an informed view, to justify our reliance
on the accuracy of the information provided to us by the Company, its Directors and its management and to provide
a reasonable basis for our recommendation. We have not, however, conducted any form of in-depth investigation
into the business affairs, financial position or future prospects of the Group, the Target Company and the
counterparties to the Communications Group Agreement and the Yiwu Agreement, nor carried out any independent
verification of the information supplied, representations made or opinions expressed by the Company, its
Directors and its management. Our opinion is necessarily based on the financial, economic, market and other
conditions in effect and the information made available to us as at the Latest Practicable Date. The Directors
should note that subsequent developments (including any material change in market and economic conditions)
may affect and/or change this opinion and that we do not have any obligation to update, revise or reaffirm
this opinion.
PRINCIPAL FACTORS AND REASONS CONSIDERED
In arriving at our opinion and recommendations regarding the Communications Group Acquisition and the Yiwu
Acquisition, we have considered the following principal factors and reasons:
1. Background to and reasons for entering into the Acquisition Agreements
1.1 Background of the Group
The Group is principally engaged in investing in, developing and operating high-grade roads in
the PRC. The Group also carries on certain other businesses such as automobile servicing, operation of
gas stations and billboard advertising along expressways, as well as securities related business. The
Group currently operates Zhejiang Section of the Shanghai- Hangzhou-Ningbo Expressway and the Shangsan
Expressway, both of which are situated within Zhejiang Province. As at 31 December 2012, the total length
of expressways managed by the Group was approximately 389.6 km.
Set out below is a summary of the Group's audited consolidated financial results for the years
ended 31 December 2011 and 2012:
For the year ended 31 December
2011 2012
Revenue Profit after tax Revenue Profit after tax
(Note) (Note)
RMB'000 % RMB'000 % RMB'000 % RMB'000 %
Toll revenue 3,522,510 51.9% 1,695,078 82.0% 3,548,692 53.0% 1,637,244 87.6%
Service area and
advertising
businesses 1,916,564 28.3% 71,763 3.5% 2,025,429 30.2% 66,169 3.5%
Securities operation 1,342,278 19.8% 299,101 14.5% 1,126,137 16.8% 165,669 8.9%
--------- ----- --------- ----- --------- ----- --------- ----
Total revenue/Total
profit after tax 6,781,352 100% 2,065,942 100% 6,700,258 100% 1,869,082 100%
========= ===== ========= ===== ========= ===== ========= ====
Note: It represents revenue after deducting the sales related taxes.
We note that the expressway operations have been the major business segment of the Group. For
the years ended 31 December 2011 and 2012, the revenue of the Group's expressway operations accounted
for approximately 51.9% and 53.0% of the Group's total revenue, respectively, while the profit after
tax of the Group's expressway operations accounted for approximately 82.0% and 87.6% of the Group's
total profit after tax, respectively. If taking into account the nature of service area and
advertising businesses, the Group's expressway related business would account for approximately
80.2% and 83.2% of the Group's total revenue, respectively, for the years ended 31 December 2011
and 2012. During the same period, the Group's expressway related business accounted for
approximately 85.5% and 91.1% of the Group's total profit after tax, respectively.
1.2 Background of the Target Company and expressway assets held by the Target
The Target Company is a limited liability company established in the PRC on 8
February 2002 and with a registered capital of RMB900,000,000. It is principally engaged in the operation
and management of Jinhua Section of the Ningbo-Jinhua Expressway, which commenced operation since December
2005. The Ningbo-Jinhua Expressway is a branch line of the Shenyang-Haikou Expressway within the State
expressway network linking the eastern and western parts of Zhejiang Province, connecting to Hangjinqu
Expressway and Ningbo Loop Expressway. Jinhua Section of the Ningbo-Jinhua Expressway, under the Target
Company's operation, is a dual four-lane expressway located in Chengzhou City, Dongyang City, Yiwu
City and Jinhua City of Zhejiang Province with a total length of approximately 69.7 km. In 2012, Jinhua
Section of the Ningbo-Jinhua Expressway recorded an average daily traffic volume of 12,084 vehicles
in full-trip equivalents. As at the Latest Practicable Date, the toll collection rights period of the
Ningbo-Jinhua Expressway is pending final approval by the relevant governmental authorities. In
accordance with the relevant expressway regulations in the PRC, the toll collection rights period
of an expressway shall not be more than 25 years.
1.3 Financial information of the Target Company
Set out below is a summary of major financial information as extracted from the Target Company's
audited financial statements for the years ended 31 December 2011 and 2012 prepared by its PRC statutory
auditors:
For the year ended/
As at 31 December
2011 2012
RMB'000 RMB'000
(audited) (audited)
Revenue (Note) 213,333 227,618
Depreciation & amortization 84,215 89,464
Finance costs 87,567 83,234
EBITDA 143,674 153,994
Loss after tax (28,108) (18,704)
Net asset value 669,588 650,883
Note: It represents revenue after deducting the sales related taxes.
We note that the Target Company has experienced a growth in revenue although still operating
at loss. For the years ended 31 December 2011 and 2012, the Target Company achieved a revenue of
approximately RMB213.3 million and RMB227.6 million, respectively, representing an increase of
approximately 6.7%. During the same period of time, the Target Company incurred a loss of
approximately RMB28.1 million and RMB18.7 million, respectively, representing a decrease of
approximately 33.5%. We are advised by the Company's management that it is normal for an
infrastructure project company to record losses during the early stage of its operation due
to the effects of financing costs and amortization charges. Notwithstanding the loss of its
operation, we note that the Target Company has performed relatively well in terms of EBITDA.
For the years ended 31 December 2011 and 2012, the EBITDA of the Target Company amounted to
approximately RMB143.7 million and RMB154.0 million, respectively, representing an increase of
approximately 7.2%.
1.4 Economic and industry development of Zhejiang Province
According to "The 12th Five-Year Plan" endorsed by the Chinese Communist Party Central
Committee, the PRC's GDP is estimated to grow at approximately 7% annually over the 12th Five-Year-Plan
period. Against the backdrop of economic expansion and accelerated industrialization, greater demand for
source of energy and raw materials bring in higher level of market activity and circulation of labor
and commodities. As set out in "The 12th Five-Year Plan on Transport" published by the Ministry of
Transport of the PRC, road transportation is one of the necessities to facilitate national economic
growth and therefore toll road operation is expected to ride on this growing trend. The table below
set out the annual growth rate of the real GDP and urbanization rate of Zhejiang Province and the PRC
between 2006 and 2012:
2006 2007 2008 2009 2010 2011 2012
(%) (%) (%) (%) (%) (%) (%)
Real GDP growth rate - Zhejiang Province 13.9 14.7 10.1 8.9 11.9 9.0 8.0
Real GDP growth rate - the PRC 12.7 14.2 9.6 9.2 10.4 9.3 7.8
Urbanization rate (Note) - Zhejiang Province 56.5 57.2 57.6 57.9 61.6 62.3 NA
Urbanization rate - the PRC 44.4 45.9 47.0 48.3 50.0 51.3 NA
Note: Urbanization rate represents the percentage of urban population to total population.
Source: National Bureau of Statistics of China, Zhejiang Provincial Bureau of Statistics
According to "The 12th Five-Year Plan on New Urbanization in Zhejiang Province", Zhejiang
Province is one of the provinces having achieved the highest level of urbanization with the rate
estimated to reach approximately 63% by 2015. The rural and urban integration development in Zhejiang
Province is expected to gain more momentum during the 12th Five- Year-Plan period. Because of the
economic and social drive behind this transformation, it is believed that the transportation in Zhejiang
Province will continue to benefit from high level of infrastructure construction, traffic consolidation
and logistic upgrade.
1.5 Traffic volume of Jinhua Section of the Ningbo-Jinhua Expressway
The table below summarizes the daily traffic volume of Jinhua Section of the Ningbo- Jinhua
Expressway provided by the Company for the years ended 31 December 2011 and 2012:
Average daily traffic volume (vehicle/day)
Fucun
Junction - Fucun - Yiting - Xucun - Yiwu - Dongyang - Huailu Junction - Caizhai -
Fucun Yiting Xucun Yiwu Dongyang Huailu Junction Caizhai Jinhua Total
2011 9,248 9,198 9,203 9,083 10,771 13,141 14,728 11,471 12,166 10,775
2012 10,109 10,182 10,291 10,539 12,618 15,025 16,593 12,134 12,718 12,084
Change (%) 9.3% 10.7% 11.8% 16.0% 17.1% 14.3% 12.7% 5.8% 4.5% 12.1%
From the table above, we note that the traffic volume of Jinhua Section of the Ningbo- Jinhua
Expressway and most of its sub-sections recorded double digit growth rate for the year ended 31 December
2012. Based on the traffic volume and toll revenue study of Jinhua Section of the Ningbo-Jinhua
Expressway (the "Traffic Study Report") as set out in Appendix II in the Circular prepared by Wilbur
Smith Associates, an independent traffic consultant (the "Traffic Consultant"), the average daily traffic
volume of Jinhua Section of the Ningbo-Jinhua Expressway is projected to increase from 12,084 vehicles
in 2012 to 36,784 vehicles in 2030, representing a CAGR of approximately 6.38%. Upon completion of the
Acquisitions, the Group is able to increase the length of expressways under management by approximately
18% to 459.4 km while the traffic volume of Jinhua Section of the Ningbo- Jinhua Expressway is projected
to grow at a CAGR of approximately 6.38% till 2030.
1.6 Reasons and benefits for entering into the Acquisition Agreements
As disclosed in the Letter from the Board, after completion of the Acquisitions, the total length
of expressways managed by the Company will increase from approximately 389.6 km to approximately 459.4 km.
The main businesses of the Company will be enhanced through the Acquisitions which help to increase the
market share and competitive strength of the Company in Zhejiang Province. Jinhua Section of
Ningbo-Jinhua Expressway connects with Shaoxing Section of Ningbo-Jinhua Expressway (which is managed
by Shengxin Expressway Co., Ltd., in which the Company currently owns 50% equity interest), and
crosses with the Shangsan Expressway managed by the Company. The Directors believe that the Acquisitions
will facilitate the Company to better utilise its experience and advantages in toll operation and to
complement the Company's existing network of expressways, and are in line with the Company's
development strategy.
We note from the Group's 2011 Annual Report that it is the Group's strategy to continue seeking
suitable investment in and acquisition of expressway projects for the steady development of the Company.
As described in "Zhejiang Province Construction Plan on Highways and Waterborne Transport" published by
Zhejiang Provincial Department of Transportation, the Ningbo-Jinhua Expressway is regarded as a "Golden link"
traversing mid-eastern part of Zhejiang Province, connecting major expressways in Ningbo, Shaoxing and Jinhua
and forming transport junction with Hangjinqu Expressway, Shangsan Expressway and Zhuyong Expressway and to
complement the Group's existing network. The Group has continued to establish strong business presence in
the operation of toll road within Zhejiang Province and pursued similar acquisition strategy in the past
in order to expand its market share of traffic volume in Zhejiang Province. In July 2012, the Company
announced the acquisition of 50% equity interest of Shengxin Expressway Co., Ltd, which owns the toll
collection rights to Shaoxing Section of the Ningbo-Jinhua Expressway, located in Xinchang City and
Shengzhou City with a total length of 73 km, connecting Jinhua Section of the Ningbo-Jinhua Expressway.
The Target Company is beneficially owned as to 23.45% by the Company since June 2007. Upon
completion of the Acquisitions, the Target Company will become a wholly- owned subsidiary, which enables
the Company to gain management control over the Ningbo- Jinhua Expressway. The Target Company could in
turn, be fully benefited from the Group's expertise in toll operation. We concur with the Directors'
view that the Acquisitions are in line with the Company's development strategy. We note that the toll
collection rights period of Jinhua Section of the Ningbo-Jinhua Expressway is pending final approval by
the relevant governmental authorities, creating uncertainty to the Target Company's operations. In this
connection, the parties to the Acquisition Agreements have agreed to enter into supplemental agreements
to adjust downward the considerations for the Acquisitions with reference to the revised valuation of
the Target Company taking into account the difference of the toll collection rights period. The Directors
consider that this consideration adjustment arrangement helps mitigate the uncertainty brought by the
change of toll collection rights period. Furthermore, it is worth noting that the Group has strong level
of bank and cash balances and the Directors believe that the Acquisitions will better utilize its cash
by increasing the Group's investment in the expressways, in particular to those projects which the
Group currently operates.
Having taken into account the Group's business development strategy, the Group's management control over
the Target Company upon completion of the Acquisitions, the traffic volume projection by the Traffic
Consultant and the steady improvement in the financial performance of the Target Company, we consider
that the entering into of the Acquisition Agreements is reasonable under the Group's present development.
2. Principal terms of the Acquisition Agreements
2.1 Basis of Consideration
The considerations for the Acquisitions were determined after arm's length negotiations amongst the
Company, Communications Group and Yiwu Development and having taken into account a number of factors,
including, amongst others, the Valuation Report by Jones Lang LaSalle, as well as the PRC Valuation Report
by the PRC Domestic Valuer. As stated in the Letter from Board, the Company appointed and relied on
Jones Lang LaSalle to carry out a valuation in respect of the Target Company. As at 30 September 2012,
the appraised value of the Target Company amounted to approximately RMB1,026.0 million (the
"JLL Valuation"). Details of the Valuation Report are set out in Appendix I in this Circular.
It is noted that pursuant to the relevant PRC laws and regulations, the Acquisitions as a transfer of
State-owned asset requires approval from Zhejiang SASAC. In this connection, Communications Group also
appointed the PRC Domestic Valuer to prepare the PRC Valuation Report to meet the requirement of
Zhejiang SASAC. As at 30 September 2012, the PRC appraised value of the entire equity of the Target
Company was approximately RMB988.7 million (the "PRC Valuation"). It is noted that such PRC Valuation
Report has already been submitted to Zhejiang SASAC for registration.
The considerations for the Communication Group Acquisition and the Yiwu Acquisition (collectively the
"Considerations") amounted to approximately RMB655.4 million and RMB101.5 million, respectively, which
represent a discount of approximately 3.7% to the respective equity values under the JLL Valuation.
Notwithstanding the fact that the Considerations appears in par with the appraised equity values under
the PRC Valuation, the Directors confirm that the Company relies on the JLL Valuation instead of the
PRC Valuation in accessing the Consideration. In this aspect, the Directors confirm that Company has
no appointment relationship with the PRC Domestic Valuer. In addition, the Company did not involve in
the preparation of the PRC Valuation Report. The Directors consider that the PRC Valuation Report is
mainly for the use of Communications Group and Zhejiang SASAC.
We understand that the JLL Valuation, to a considerable extent, was evaluated with reference to the
Traffic Study Report. For the purpose of assessing whether the JLL Valuation could provide a benchmark
to assess the fairness and reasonableness of the Considerations, we have reviewed the Valuation Report
and the Traffic Study Report and have interviewed Jones Lang LaSalle and the Traffic Consultant
regarding the basis of preparation of their respective reports. We also note from our discussions
that Jones Lang LaSalle has the required experience in performing the valuation of the expressway
assets while the Traffic Consultant has the required experience in performing the forecast studies
on traffic volume and toll revenue for expressways in the PRC.
2.2 The Valuation Report
(a) Methodologies
We understand that Jones Lang LaSalle has considered three generally accepted valuation approaches,
namely the market approach, cost approach and income approach in arriving at the JLL Valuation.
Jones Lang LaSalle considers that the market approach is inappropriate as they have not identified
any current market transactions which are comparable to the Acquisitions given that market transactions
on expressway assets tend to have very different transaction prices considering a number of factors
including geographical areas, toll rates and traffic, and operating stages and status of the
expressway assets. Jones Lang LaSalle also considers that the cost approach is inappropriate since
the toll road operation requires specific expertise and this approach does not directly incorporate
information about the economic benefits derived from the intangible assets of the Target Company such
as enterprise skills and management team.
As advised by Jones Lang LaSalle, they have adopted the discounted cash flow method ("DCF") under the
income approach to derive a present fair value from the future value of the Target Company's business.
This method eliminates the discrepancy in time value of money by using a discount rate to reflect all
business risks including intrinsic and extrinsic uncertainties in relation to the Target Company's
business. Based on the previously mentioned analysis, we concur with the views of Jones Lang LaSalle
that DCF is an appropriate method in valuing the Target Company based on the facts that (i) the
recurring nature of the toll revenue derived from the assets held by the Target Company; and (ii) DCF
is the most commonly used valuation method in valuing infrastructure project.
(b) Discount rate
When applying DCF to estimate the present market value of the Target Company, it is necessary to
determine an appropriate discount rate for the assets under review. We note that Jones Lang LaSalle
has used the Capital Assets Pricing Model (the "CAPM") to estimate the required rate of return on
equity of the Target Company. We understand from Jones Lang LaSalle that the CAPM technique is
widely accepted in the investment and financial analysis communities for the purpose of estimating
a company's required rate of return on equity. In arriving at the discount rate, Jones Lang LaSalle
has taken into account a number of factors including (i) risk free rate; (ii) market return;
(iii) company specific risk; and (iv) beta of a number of comparable companies. Such comparable
are companies listed on the Stock Exchange and engage in similar business to the Target Company.
As such, we are of the view that it is fair and reasonable to derive beta from these peer
companies. Moreover, in view of the fact that the Target Company is a private company, Jones
Lang LaSalle applied a lack of marketability discount rate to the Target Company's equity
interest based on their analysis and market average.
Jones Lang LaSalle also conducted sensitivity analysis and profile the results based on
a 5%, 10% and 15% variations from the derived discount rate of 10.79%. To ascertain the
reasonableness of the selection of the range for discount rates, we (i) discussed with
Jones Lang LaSalle and were confirmed that the range is in line with the industry practice
and consistent with their experience in other similar transactions and (ii) reviewed the
discount rates applied in other acquisition of toll roads transactions. We noted that the
range of the discount rate of other toll road transactions fell within that of the selective
range of the discount rate. Based on the works performed above, we are not aware of any
matters that will cause us to doubt the reasonableness of the selection of the range for
discount rates or the methodology of the sensitivity analysis.
We have obtained relevant information and interviewed Jones Lang LaSalle to
assess the fairness and reasonableness of the discount rate and the discount for lack of
marketability and concur with view of Jones Lang LaSalle that the factors for the discount
rate used in the JLL Valuation are in line with market practice.
(c) Traffic volume and toll revenue forecast and relevant accounting assumptions
We note that Jones Lang LaSalle has considered and relied to a considerable extent on the
traffic volume and toll revenue study for Jinhua Section of the Ningbo- Jinhua Expressway
produced in the Traffic Study Report when determining the JLL Valuation. Jones Lang LaSalle
believed that the forecast of those data are reasonable. We have interviewed Jones Lang
LaSalle and the Traffic Consultant regarding the basis of projecting the traffic volume
and toll revenue of Jinhua Section of the Ningbo-Jinhua Expressway.
We have also obtained and reviewed the work papers prepared by Jones Lang LaSalle and
discussed the key accounting assumptions (including cost of goods sold, operating expense and capital
expenditure) used in the Valuation Report. Based on the work performed, we are not aware of any
factors which would cause us to doubt the fairness and reasonableness of the assumptions used in
the JLL Valuation.
2.3 The Traffic Study Report
We have reviewed the Traffic Study Report and discussed with Traffic Consultant on the
methodologies, bases and assumptions underlying the estimation on traffic volume and toll revenue
of Jinhua Section of the Ningbo-Jinhua Expressway. We note that in forecasting the traffic volume,
the Traffic Consultant has (i) collected economic and historical traffic data concerning Jinhua
Section of the Ningbo-Jinhua Expressway; (ii) performed route check on Jinhua Section of the
Ningbo-Jinhua Expressway; and (iii) built up a traffic model to estimate the traffic volume
and toll revenue of Jinhua Section of the Ningbo-Jinhua Expressway.
In building up the traffic model, the Traffic Consultant has (i) analyzed the existing travel
patterns; (ii) used historical traffic data of Jinhua Section of the Ningbo- Jinhua Expressway;
(iii) assumed that there will be no change in the toll rate; and (iv) estimated the growth rate
of traffic volume based on the GDP of the relevant area (e.g. Zhejiang Province). In addition,
we understand from the Traffic Consultant that they have also considered the potential
competition to which Jinhua Section of the Ningbo-Jinhua Expressway will be subject to.
We have discussed with the Traffic Consultant on the impact of the new expressways on the
traffic projection of Ningbo-Jinhua Expressway, and are given to understand that the model
adopted by the Traffic Consultant has already taken into account the road network change in
future years. As stated in the Traffic Study Report, the Traffic Consultant adopted the
generalised cost approach in determining users' route choice behaviors, which are affected
by travel time, trip length and costs. Accordingly, the assumption of road network change
is also considered in this model. On this basis, nothing had come to our attention that will
cause us to doubt the reasonableness of the impact of new expressways on Ningbo-Jinhua
Expressway used by the Traffic Consultant.
With regard to the toll rate, we note that the Traffic Consultant assumes a fixed toll rate over
the forecast period. In spite of the uncertainty in change of policies on toll rates, historical toll
rate has remained unchanged since the operational commencement of Jinhua Section of the Ningbo-Jinhua
Expressway; and therefore, we consider the above mentioned assumption reasonable. Nonetheless, it is
worth noting that the valuation of the Target Company could be affected by the possibility of toll
rate increases of Jinhua Section of the Ningbo-Jinhua Expressway in the future.
The Traffic Consultant has advised that the underlying assumptions adopted in the Traffic
Study Report are normally used, and are fair and reasonable. The Traffic Consultant also advised us
that the forecast procedures performed in the Traffic Study Report are internationally recognized and
commonly used in the market. Based on our interview with the Traffic Consultant, we have not identified
any major issues that would cause us to doubt the fairness and reasonableness of the methodologies and
bases applied in the Traffic Study Report. As such, we are of the opinion that the Traffic Study Report
provides a reasonable basis for the Valuation Report.
Having considered that the attributable appraised value of the Communications Group Acquisition and
Yiwu Acquisition based on the JLL Valuation are higher than Considerations, we concur with the
Directors' view that the basis of determining the Considerations is reasonable.
2.4 Payment arrangements under the Acquisition Agreements
As set out in the Letter from the Board, the Considerations are payable by the Company by
cash within 5 business days after the effective date of the Acquisition Agreements. Taking into
consideration that the above payment arrangement requires the satisfaction of the condition precedents
such as obtaining the Zhejiang SASAC's approval and the Independent Shareholders' approval in
connection with Acquisition Agreements, we are of the view that the above payment arrangement is
on normal commercial terms.
2.5 Other key terms of the Acquisition Agreements
As disclosed in the Letter from the Board, several key terms of the Acquisition Agreements are
disclosed as follows:
(a) Consideration adjustment
The Considerations payable by the Company under the Acquisition Agreements were determined on
the assumption that the toll collection rights period of the Ningbo-Jinhua Expressway as finally
approved will be 25 years. As Jinhua Section of the Ningbo-Jinhua Expressway commenced operations
in late 2005, it is estimated that the relevant collection rights period shall expire in 2030. As
at the Latest Practicable Date, the toll collection rights period of the Ningbo-Jinhua Expressway
has yet to be approved by the relevant PRC governmental authorities. In the event that the approved
toll collection rights period of the Ningbo-Jinhua Expressway is different from 25 years, the Company,
Communications Group and Yiwu Development have agreed to enter into supplemental agreements to adjust
downward the Considerations with reference to the valuation of the Target Company to be carried out
by the PRC Domestic Valuer taking into account of the difference of the toll collection rights period.
In view of the fact that (i) the toll collection period is one of the key assumptions when
evaluating the valuation of the Target Company; (ii) the valuation of the Target Company is one of
the major factors considered by the Company when determining the Considerations; and (iii) the
Company shall comply with the applicable reporting, announcement and independent shareholders'
approval requirements under Chapter 14 and 14A of the Listing Rules in the event that the
Considerations are adjusted, we are of the view that the consideration adjustment arrangement
is a commercial acceptable mechanism that will provide flexibility to the Company to obtain
the latest reference value of the Target Company and safeguard the Group's interest in the
event of change in the toll collection rights period.
(b) Capital injection and repayment of the Loans
The Company and Communications Group have agreed that within 120 days after the completion
of the Communications Group Agreement, the Company will inject additional capital into the Target
Company. The Company plans to make a capital injection of up to RMB1,400,000,000 into the Target
Company so that the Target Company will apply such capital to fully repay the Loans (which are
interests bearing) under the Loan Agreements and the Credit Agreement.
Having considered the fact that (i) Communications Group will cease to be a shareholder of the
Target Company after the completion of the Communications Group Acquisition; (ii) the capital
injection will broaden the Target Company's capital base and reduce its financial leverage;
(iii) the Target Company incurred substantial finance costs in the past, which amounted to
approximately RMB87.6 million and RMB83.2 million for the years ended 31 December 2011 and
2012, respectively. The repayment of the Loans will reduce the finance costs and improve the
future financial performance of the Target Company; and (iv) the Group had maintained sufficient
financial resources with bank balances and cash of RMB4,846.1 million as at 31 December 2012,
we are of the view that the capital injection and the repayment of the Loans to Communications
Group are reasonable so far as the Company and the Independent Shareholders are concerned.
3. Potential Financial Effects of the Acquisitions on the Group
3.1 Effect on the earnings of the Company
Upon completion of the Acquisitions, the Target Company will be consolidated into the financial
statements of the Group. As mentioned above, the revenue and net loss after tax of the Target
Company were approximately RMB227.6 million and RMB18.7 million, respectively for the year ended
31 December 2012. The Target Company currently adopts the units-of-usage method of
depreciation where its expressway assets are being depreciated based on the traffic
volume. Upon completion of the Acquisitions, the Target Company's depreciation method
will be changed to straight-line method to align with the Group's accounting policies.
Accordingly, the change of the Target Company's depreciation method will affect the
amount of deprecation expenses being charged to the Group's income statement.
3.2 Effect on working capital of the Company
The total considerations for the Acquisitions amounted to approximately RMB756.9 million shall
be satisfied by cash. The Group will also make an additional capital in the Target Company to
fully repay the Loans of RMB410.0 million due to Communications Group. According to the
Company's audited financial statements for the year ended 31 December 2012, the Group's bank
balances and cash amounted to RMB4,846.1 million. It is expected that the Acquisitions and
repayment of the Loans would result in a reduction in the Group's bank balances and cash.
We note that the Group has sufficient cash to settle the Considerations and repayment of the Loans.
3.3 Effect on balance sheet of the Company
Before the completion of the Acquisition Agreements, the Group held 23.45% equity interest
in the Target Company and was accounted for as investment in associate using the equity method.
Upon completion of the Acquisition Agreements, the Target Company will become a wholly-owned
subsidiary of the Group and its assets and liabilities will be consolidated into the accounts
of the Group. However, in the event that only the Communications Group Acquisition is
completed, the Target Company will become a 89.733% owned subsidiary of the Group.
Shareholders should note that the aforementioned analysis is for illustrative purposes only
and does not purport to represent how the financial position of the Company will be upon the completion
of the Acquisition Agreements.
4. Risk Factors
The Independent Shareholders should be aware of the various risk factors that would pose
uncertainties to the Acquisitions, particularly the following principal risks:
4.1 Economic environment
As part of an infrastructure industry, performance of the expressway business is significantly
influenced by the surrounding demographical and economic conditions. Economic cycle leads to
fluctuation in levels of economic activities and in turn the demand for transportations.
Future growth in traffic volume is expected to depend on the continued economic growth and
development policies of the PRC and in particular, Zhejiang Province. Any adverse changes
in these economies may adversely affect the traffic volume and toll revenue on Jinhua
Section of the Ningbo-Jinhua Expressway.
4.2 Competition
The profitability of the Target Company may be adversely affected by the existence of other
means of transportation including airline, railways and alternative highways routes. In
addition, there is no assurance that the national or provincial government will not propose
new toll highways in Zhejiang Province, which might compete with Jinhua Section of the
Ningbo-Jinhua Expressway in the foreseeable future.
4.3 Toll policy
Local toll road policies in Zhejiang Province are expected to change due to the introduction
of a special project by five ministries and commissions in mid-June 2011 for the rectification
of the toll road policy, coupled with the current inflationary pressure and an increase in
the prices of petroleum products. Toll standards for vehicle classes and toll calculation
methods adopted by expressways in the province are expected to be adjusted further. It is
uncertain whether or not changes in toll standards for expressways arising from such
adjustments will have an adverse impact on the Target Company's toll revenue.
4.4 Toll collection rights period
Jinhua Section of the Ningbo-Jinhua Expressway has not been granted a final approval on its
toll collection rights period. Pursuant to the "Regulation on the Administration of Toll Roads"
and other rules and regulations of the relevant governmental authorities, the toll collection
rights period for expressways shall not exceed 25 years. The Considerations are determined
with reference to the valuations of the Target Company, which were prepared on the assumption
of 25-years toll collection rights period. If the toll collection rights period of Jinhua
Section of the Ningbo-Jinhua Expressway approved by governmental authorities were less than
25 years, the Target Company's business and operating results might be materially and adversely
affected and the Considerations would be adjusted accordingly.
RECOMMENDATIONS
Having taken into account the above factors and reasons, we are of the opinion that (i) the terms of
the Communications Group Agreement and the Yiwu Agreement are on normal commercial terms and are fair
and reasonable so far as the Independent Shareholders are concerned; and (ii) the Communications Group
Acquisition and Yiwu Acquisition are in the ordinary and usual course of business of the Company and
in the interests of the Company and the Shareholders as a whole. Therefore, we advise the Independent
Board Committee to recommend the Independent Shareholders to vote in favor of the relevant resolution
to approve the Communications Group Agreement and the Yiwu Agreement and the transactions contemplated
thereunder at the AGM.
Yours faithfully,
For and on behalf of ABCI
Capital Limited
Kevin Ma Steve Wong
Managing Director and Managing Director
Co-head of Investment Banking
For Appendix I, II, III, IV, please visit: http://www.prnasia.com/sa/attachment/2013/05/20130509135725158497.pdf
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NOTICE OF AGM
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ZHEJIANG EXPRESSWAY CO., LTD.
(A joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock code: 0576)
NOTICE OF 2012 ANNUAL GENERAL MEETING
NOTICE IS HEREBY GIVEN THAT the 2012 annual general meeting (the "AGM") of Zhejiang Expressway Co., Ltd.
(the "Company") will be held at 3 p.m. on Friday, June 21, 2013 at 12/F, Block A, Dragon Century Plaza, 1 Hangda
Road, Hangzhou, Zhejiang Province, the People's Republic of China (the "PRC"), for the purpose of considering
and, if thought fit, passing with or without modification or amendment the following resolutions:
AS ORDINARY RESOLUTIONS
1. to consider and approve the report of the directors of the Company (the "Directors") for the year 2012;
2. to consider and approve the report of the supervisory committee of the Company for the year 2012;
3. to consider and approve the audited financial statements of the Company for the year 2012;
4. to consider and approve final dividend of Rmb24 cents per share in respect of the year ended December
31, 2012;
5. to consider and approve the final accounts of the Company for the year 2012 and the financial budget
of the Company for the year 2013;
6. to consider and approve the re-appointment of Deloitte Touche Tohmatsu Certified Public Accountants
Hong Kong as the Hong Kong auditors of the Company, and to authorize the board of directors of the
Company (the "Board") to fix their remuneration; and
7. to consider and approve the re-appointment of Pan China Certified Public Accountants as the PRC auditors of
the Company, and to authorize the Board to fix their remuneration.
8. to approve and confirm
a. the agreement dated March 20, 2013 (the "Communications Group Agreement") entered into between the
Company and Zhejiang Communications Investment Group Co., Ltd. (a copy of which is produced to the
AGM marked "1" and initialed by the chairman of the AGM for the purpose of identification), and
the terms and conditions thereof and the transactions contemplated thereunder and the
implementation thereof;
b. the agreement dated March 20, 2013 (the "Yiwu Agreement") entered into between the Company and
Yiwu Communications Development Co., Ltd. (a copy of which has been produced to the AGM marked "2"
and initialed by the chairman of the AGM for the purpose of identification), and the terms and
conditions thereof and the transactions contemplated thereunder and the implementation thereof;
and to approve, ratify and confirm the authorization to any one of the Directors, or any other person
authorized by the Board from time to time, for and on behalf of the Company, among other matters,
to sign, seal, execute, perfect, perform and deliver all such agreements, instruments, documents
and deeds, and to do all such acts, matters and things and take all such steps as he or she or
they may in his or her or their absolute discretion consider to be necessary, expedient, desirable
or appropriate to give effect to and implement the Communications Group Agreement or the Yiwu
Agreement or both of them and the transactions contemplated thereunder and all matters incidental
to, ancillary to or in connection thereto, including agreeing and making any modifications,
amendments, waivers, variations or extensions of the Communications Group Agreement or the
Yiwu Agreement or the transactions contemplated thereunder; and
AS SPECIAL RESOLUTIONS
9. to approve and confirm the proposed issue of domestic corporate bonds by the Company with an aggregate
principal amount of up to RMB1 billion ("Domestic Corporate Bonds"), on the conditions set forth below:
(1) Issuer: The Company.
(2) Place of issue: The PRC.
(3) Aggregate principal amount: Up to RMB1 billion, which can be issued in single or
multiple tranche(s) subject to the approval of China
Securities Regulatory Commission (the "CSRC"). Subject
to the granting of authority by the shareholders of
the Company (the "Shareholders") to the Board at the
AGM, details of issue size and tranches are intended
to be determined by the Board according to the financial
requirements of the Company and market conditions
prevailing at the time of issue.
(4) Arrangement for issue to The Domestic Corporate Bonds will not be offered to the
Shareholders: Shareholders on a preferential basis.
(5) Maturity: Up to 10 years, the Domestic Corporate Bonds may be issued
in single or multiple tranche(s) with different maturity.
Subject to the granting of authority by the Shareholders
to the Board at the AGM, the maturity and the issue size
of each tranche are intended to be determined by the Board
according to the requirements of the Company and market
conditions prevailing at the time of issue.
(6) Use of proceeds: The proceeds from the proposed issue of the Domestic
Corporate Bonds are intended to be used by the Company
to improve its capital structure and to supplement the
working capital of the Company. Subject to the granting
of authority by the Shareholders to the Board at the AGM,
details of the use of proceeds are intended to be determined
by the Board according to the financial conditions of the
Company.
(7) Listing: An application for listing and trading of the Domestic
Corporate Bonds (subject to the fulfillment of relevant
listing requirements) shall be made with the Shanghai
Stock Exchange as soon as practicable following the completion
of the proposed issue of the Domestic Corporate Bonds. Subject
to the approval of relevant regulatory authorities, applications
for listing and trading of the Domestic Corporate Bonds may be
made with other stock exchange(s) permitted by applicable laws.
(8) Term of validity of the resolutions: The proposed Shareholders' resolutions to be passed at the AGM
in respect of the proposed issue of Domestic Corporate Bonds,
if passed, shall be valid for 30 months from the date of
passing of the relevant resolutions at the AGM.
and to approve and confirm the granting of authority to the Board to deal with all matters relating to
the proposed issue and listing of the Domestic Corporate Bonds in the absolute discretion of the
Board in accordance with the applicable laws and regulations (including, among others, the Company
Law of the PRC, the Securities Law of the PRC and the Tentative Methods on Issue of Corporate Bonds
promulgated by the CSRC) and the articles of association of the Company, including, but not limited
to the following:
(1) to formulate specific plan and terms for the issue of the Domestic Corporate Bonds
according to the requirements of the relevant laws and regulations, the Shareholders'
resolutions passed at the AGM and market conditions, including but not limited to the
issue size, maturity, type of bonds, interest rate and method of determination, timing
of issue (including whether to issue in tranches and their respective size and maturity),
security plan, whether to allow repurchase and redemption, use of proceeds, rating,
subscription method, term and method of repayment of principal and interests, listing
and all other matters relating to the issue and listing of the Domestic Corporate Bonds;
(2) to appoint intermediaries in connection with the listing applications of the Domestic
Corporate Bonds and the actual listing of the bonds; including but is not limited to
the authorisation, execution, performance, variation and completion of all necessary
documents, contracts and agreements (including, among others, prospectus,
subscription agreement, underwriting agreement, trustee deed, listing agreement,
announcements and other legal documents) and other relevant disclosures as required
by relevant laws and regulations;
(3) to appoint a trustee for the proposed issue of the Domestic Corporate Bonds, to
execute relevant trust deed and to determine rules for meetings of holders of the
Domestic Corporate Bonds;
(4) subject to any matters which require Shareholders' approval, to make appropriate
adjustments to the proposal for the proposed issue and terms of the Domestic
Corporate Bonds in accordance with the comments (if any) from the relevant PRC
regulatory authorities; and
(5) in the event of the Company's expected failure to repay the principal and interests
of the Domestic Corporate Bonds as scheduled or when such amounts fall due, to
implement, as a minimum, the following measures:
(a) not to declare any profit distributions to the Shareholders;
(b) to postpone the implementation of capital expenditure projects such as material
investments, acquisitions or mergers;
(c) to reduce or discontinue the payment of salaries and bonuses of the Directors
and senior management of the Company; and
(d) not to transfer or second away any key officers of the Company;
(6) to deal with any other matters relating to the proposed issue and listing of the
Domestic Corporate Bonds;
(7) subject to the term of validity of the Shareholders' resolutions as mentioned above,
the authority granted to the Board to deal with the above matters will take effect from
the date of the passing of the relevant Shareholders' resolution at the AGM until all
the authorized matters in relation to the proposed issue of the Domestic Corporate
Bonds have been completed; and
(8) at the same time as the authorities mentioned under paragraphs (1) - (6) above are
granted, the Board shall be authorised to delegate to Mr. Wu Junyi the powers to deal
with all specific matters relating to the proposed issue and listing of the Domestic
Corporate Bonds within the limit of the authorities granted to the Board as mentioned
above.
By order of the board of directors
Zhejiang Expressway Co., Ltd.
Tony Zheng
Company Secretary
Hangzhou, the PRC,
May 7, 2013
Notes:
1. The above mentioned resolution No. 8 shall be approved by independent shareholders as required by the
Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. Zhejiang Communications
Investment Group Co., Ltd. and its associates will abstain from voting in relation to such resolution.
Details regarding such resolution and the above mentioned resolution No. 9 are set out in the circular of
the Company dated May 7, 2013.
2. Registration procedures for attending the AGM
(1) Holders of H shares of the Company ("H Shares") and domestic shares of the Company ("Domestic
Shares") intending to attend the AGM should return the reply slip for attending the AGM to the
Company by post or by facsimile (address and facsimile numbers are shown in paragraph 7(2)
below) such that the same shall be received by the Company on or before May 31, 2013.
(2) A shareholder or his/her/its proxy should produce proof of identity when attending the AGM.
If a corporate shareholder appoints its legal representative to attend the meeting, such legal
representative shall produce proof of identity and a copy of the resolution of the board of
directors or other governing body of such shareholder appointing such legal representative to
attend the meeting.
3. Proxy
(1) A shareholder eligible to attend and vote at the AGM is entitled to appoint, in written form,
one or more proxies to attend and vote at the AGM on behalf of him/her/it. A proxy need not be
a shareholder of the Company.
(2) A proxy shall be appointed by a written instrument signed by the appointor or an attorney
authorised by him/her/it for such purpose. If the appointor is a corporation, the same shall be
affixed with the seal of such corporation, or signed by its director(s) or duly authorized
representative(s). If the instrument appointing a proxy is signed by a person authorized by
the appointor, the power of attorney or other authorization document(s) shall be notarized.
(3) To be valid, the power of attorney or other authorization document(s) (which have been
notarized) together with the completed form of proxy must be delivered, in the case of holders
of Domestic Shares, to the Company at the address shown in paragraph 7(2) below and, in the
case of holders of H Shares, to Computershare Hong Kong Investor Services Limited at 17M Floor,
Hopewell Center, 183 Queen's Road East, Hong Kong, at least 24 hours before the time designated
for holding of the AGM.
(4) Any vote of the shareholders of the Company present in person or by proxy at the AGM must be
taken by poll.
4. Book closing period
For the purpose of the AGM and to determine the shareholders who qualify for the proposed final
dividend, the register of members holding H shares of the Company will be closed from May 22,
2013 to June 20, 2013 (both days inclusive), and from June 27, 2013 to July 2, 2013
(both days inclusive).
5. Last day of transfer and record date
Holders of H Shares who intend to attend the AGM and qualify for the proposed final dividend
must deliver all transfer instruments and the relevant shares certificates to Computershare
Hong Kong Investor Services Limited at Rooms 1712-1716, 17/F, Hopewell Center, 183 Queen's
Road East, Hong Kong, at or before 4:30p.m. on May 21, 2013 and on June 26, 2013 respectively.
For the purpose of the AGM and qualify for the proposed final dividend, the record date will
be May 27, 2013 and July 2, 2013 respectively.
6. Dividend Payable date
Upon relevant approval by shareholders at the AGM, the final dividend is expected to be paid
out on July 31, 2013.
7. Miscellaneous
(1) The AGM will not last for more than one day. Shareholders who attend shall bear their
own traveling and accommodation expenses.
(2) The registered address of the Company is:
12/F, Block A, Dragon Century Plaza
1 Hangda Road
Hangzhou, Zhejiang 310007
People's Republic of China
Telephone No.: (+86)-571-8798 7700
Facsimile No.: (+86)-571-8795 0329
As at the date of this notice, the executive directors of the Company are: Mr. ZHAN Xiaozhang,
Ms. LUO Jianhu and Mr. DING Huikang; the non-executive directors of the Company are: Messrs.
LI Zongsheng, WANG Weili and WANG Dongjie; and the independent non-executive directors of the
Company are: Messrs. ZHANG Junsheng, ZHOU Jun and PEI Ker-Wei.
NOTE: To view the full set of the company's Circular of Discloseable and Connected Transactions,
please vist www.zjec.com.cn
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