Overseas Regulatory Announcem
25 March 2010
Standard Chartered PLC
The following is the text of a regulatory announcement made in Hong Kong on 25 March 2010:
CONTINUING CONNECTED TRANSACTIONS
This announcement is being published pursuant to Rule 14A.47 of the Hong Kong Listing Rules.
By virtue of its 18.38 per cent stake in the Company and the 20 per cent stake held by two of its associates in three minor subsidiaries of the Company, Temasek, together with its associates, are related parties and connected persons of the Company for the purposes of the related party rules under the UK Listing Rules and the connected transaction rules under the Hong Kong Listing Rules respectively.
The Rules are intended to ensure that there is no favourable treatment to Temasek as a substantial shareholder or to its associates to the detriment of other shareholders of the Company and also to prevent any perception that there may have been. While the Company always ensures that this is the case, the Board believes that strict compliance with the Hong Kong Listing Rules in respect of transactions with Temasek or its associates would be impractical and unduly onerous and would, in fact, be to the detriment of shareholders as a whole by restricting the Group's business.
Accordingly, the Company has sought and obtained Waivers from The Stock Exchange of Hong Kong Limited which would exempt the Company from strict compliance with certain aspects of the Hong Kong Listing Rules and permit the continuance of certain transactions with Temasek and its associates. These Waivers, and certain other matters relating to such transactions with Temasek and its associates, are granted subject to the approval of the Independent Shareholders of the Company.
Pursuant to Rule 14A.49, the Notice of Annual General Meeting 2010 to be despatched to the shareholders on or around 26 March 2010 contains details of the Resolutions to be proposed to consider and, if thought fit, approve the various Temasek-related matters at the Company's AGM to be held on 7 May 2010.
An Independent Board Committee comprising independent non-executive directors has been appointed to advise the Independent Shareholders in respect of the Resolutions. An Independent Financial Adviser has also been appointed to make recommendations to the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the Resolutions and whether they are in the interests of the Company and the shareholders as a whole.
Temasek and its associates will abstain from voting at the AGM in respect of the Resolutions.
CONTINUING CONNECTED TRANSACTIONS
Introduction
By virtue of its 18.38 per cent stake in the Company and the 20 per cent stake held by two of its associates in three minor subsidiaries of the Company, Temasek, together with its associates, are related parties and connected persons of the Company for the purposes of the related party rules under the UK Listing Rules and the connected transaction rules under the Hong Kong Listing Rules respectively. This means that where any member of the Group enters into a transaction with Temasek or any of its associates, the Company may, depending on the size or nature of the transaction, be required to comply with the reporting, announcement and Independent Shareholders' approval requirements of these Rules.
The Rules are intended to ensure that there is no favourable treatment to Temasek as a substantial shareholder or to its associates to the detriment of other shareholders of the Company and also to prevent any perception that there may have been. While the Company always ensures that this is the case, the Board believes that strict compliance with the Hong Kong Listing Rules in respect of transactions with Temasek or its associates would be impractical and unduly onerous and would, in fact, be to the detriment of shareholders as a whole by restricting the Group's business. Accordingly, the Company is asking the Independent Shareholders to approve the Waivers which have been obtained from The Stock Exchange of Hong Kong Limited in this respect and also certain other matters relating to such transactions with Temasek and its associates, which would exempt the Company from strict compliance with certain aspects of the Hong Kong Listing Rules and permit the continuance of certain transactions with Temasek and its associates. Further details on these Waivers and other related matters are given below. The related party rules under the UK Listing Rules are less onerous and the Company is able to comply with them without the same restriction to its business.
Background on Temasek
Temasek is an investment company that has a diversified portfolio of investments spanning various industries. The Group itself has substantial banking and related businesses in many of the countries in which Temasek and its associates operate and the Group has entered into and would wish to continue to enter into an extensive number of banking and other financial services transactions with Temasek and its associates in the ordinary course of its business. Such transactions have been, and would continue to be, on normal commercial terms or on terms that are fair and reasonable and in the interests of the Group and shareholders as a whole. Our imperative from a business perspective is not to impede these dealings but to maintain a process which allows such ordinary course of business transactions to continue on the same basis as before (and since) Temasek became a substantial shareholder of the Company and to continue to develop this business as opportunities may arise, so far as this would be in the Group's interest.
The waiver to modify the definition of "associate" under the Hong Kong Listing Rules insofar as it relates to Temasek as a substantial shareholder of the Company
Under the Hong Kong Listing Rules, the definition of "associate" extends to Temasek's holding company, subsidiary companies and 30% investee companies ("30% investee companies") and subsidiaries, holding companies, fellow subsidiaries of such holding companies and 30% investee companies of such 30% investee companies.
It has been our experience over the past three years in monitoring transactions with Temasek that the definition of "associate" under Rules 1.01 and 14A.11 of the Hong Kong Listing Rules is too wide in its application, particularly in relation to those entities that are more remote from Temasek, such as the holding companies of its 30% investee companies and the subsidiaries, holding companies and fellow subsidiaries of such holding companies and the 30% investee companies of such 30% investee companies.
The Hong Kong Stock Exchange has acknowledged this issue and granted a waiver to the Company to modify the definition of "associate" to carve out the following entities under Rule 1.01 insofar as it relates to transactions with associates of Temasek:
(a) the holding companies of 30% or more investee companies, which are not subsidiaries, of Temasek;
(b) fellow subsidiaries of these holding companies;
(c) a company in which a 30% or more investee company of Temasek is a 30% or more shareholder, and it is not a subsidiary of the investee company; and
(d) the subsidiaries or holding companies of the company as described in paragraph (c) above or fellow subsidiaries of such holding companies.
Waiver from strict compliance with the reporting and annual review requirements of the Hong Kong Listing Rules in respect of Ongoing Banking Transactions with Temasek associates that the Company has not been able to identify
Given Temasek's diversified portfolio of investments and the extent of the definition of 'associate' under the Hong Kong Listing Rules, the Company has been liaising directly with Temasek in order to ascertain which companies are Temasek 'associates' within the Hong Kong Listing Rule definitions. Based on the most recent information received (applying the current definition of 'associate' under the Hong Kong Listing Rules), The Company has identified in excess of 4,200 entities which are associates of Temasek.
Beyond the list of its own subsidiaries, Temasek itself does not as a matter of course maintain details on its more remote 'associates' within the Hong Kong Listing Rule definition since there is no legal or other requirement on it to do so. Therefore, as a practical matter, it has not been and will not be possible for us to identify every single Temasek associate, particularly those that are more distantly related to Temasek. In view of the difficulty of identifying all of the Temasek's associates, we have been granted a Waiver by The Stock Exchange of Hong Kong Limited (conditional on Independent Shareholders' approval and for a period of three years ending 7 May 2013) from strict compliance with the reporting and annual review requirements of Chapter 14A of the Hong Kong Listing Rules in respect of the Ongoing Banking Transactions with associates of Temasek that the Company has not been able to identify, despite having applied all reasonable efforts to identify such associates. This is on the basis that the Company will endeavour to identify Temasek associates utilising the following sources:
• a list of associates provided by Temasek that, in respect of its subsidiaries, will be updated on a quarterly basis, and that, in respect of the other associates which it identifies, will be updated on an annual basis;
• the Company's own records of ownership of its clients that are maintained for credit control purposes; and
• information which the Company may otherwise have from its dealings with Temasek and its associates or its knowledge in the market.
Further, transactions with Temasek and its associates have been and will continue to be on normal commercial terms or on terms that are fair and reasonable and in the interests of the Group and the shareholders taken as a whole. This is assured by the following processes and requirements within the Group:
• client-facing staff are required to maximise profits and minimise risk at all times;
• credit risk controls and transaction monitoring by the Group are designed to prevent business being done at rates or prices that are not economically profitable to the Group, or, in the case of market transactions, that are effected at off-market rates;
• transactions with Temasek and its associates have been and will continue to be subject to the same credit approval processes as before the time they became connected persons of the Company;
• all transactions involving credit exposure are subject to limits on credit risk that are set by risk officers located in the businesses but with separate reporting lines to the Group Chief Risk Officer (who reports to a Group Executive Director). Significant exposures are reviewed and approved centrally through a Group or regional level Credit Committee. In addition, internal controls on credit exposure require, amongst other things, an annual review and approval of credit exposures to individual client groups such as Temasek or its associates. All risk officers and Credit Committees are accountable to the Group Chief Risk Officer and are governed by policies laid down by the Group Risk Committee; and
• any procurement services sought from Temasek or its associates will follow the standard procurement policy and processes, which are applied to assist the Group in identifying suppliers that offer the best value in terms of pricing, quality and expertise.
Consistent with the purpose of the connected transaction rules and in line with the Company's running of its business, there has been no favourable treatment afforded to Temasek or any of its associates since 3 May 2007 (when the Temasek waivers granted by The Stock Exchange of Hong Kong Limited were last approved by the Independent Shareholders) and transactions with Temasek and its associates have at all times been, and will continue to be, undertaken on normal commercial terms or on terms that are fair and reasonable and in the interests of the Group and the shareholders taken as a whole.
Further details of the Ongoing Banking Transactions are set out below.
No fixed-term written agreement
Under Rule 14A.35(1) of the Hong Kong Listing Rules, any member of the Group would be required to enter into a fixed-term written agreement with Temasek or its associates (as the case may be) in relation to non-exempt continuing connected transactions, including any Ongoing Banking Transactions. This written agreement would be required to (a) be for a fixed period (not exceeding three years, except in special circumstances); (b) provide that normal commercial terms would apply to such transactions; and (c) set out how the payments to be made in respect of such transactions would be calculated. However, it would be unduly burdensome to require the Company to enter into a written agreement with Temasek and its associates given the extensive number of associates and also the fact that Temasek does not exercise management control over a large number of them and would not be able to undertake to procure compliance by its associates with the terms of any such written agreement. Notwithstanding the fact that there will be no fixed-term written agreement in place in accordance with Rule 14A.35(1), there will of course be a contract (which may be written, oral or through course of conduct) between the relevant member of the Group and the client/counterparty, being Temasek or one of its associates, governing the individual transactions.
Therefore, conditional on approval by the Independent Shareholders of the Company, The Stock Exchange of Hong Kong Limited has granted a Waiver from compliance with the requirement to enter into a fixed-term written agreement with Temasek and each of its associates in respect of the Ongoing Banking Transactions for a period of three years ending 7 May 2013. The Waiver was requested and granted on the basis that it is not practicable for the Company to enter into such agreements with Temasek given the vast number of Temasek associates and the fact that Temasek does not exercise management control over a large number of such associates.
The Company has assured The Stock Exchange of Hong Kong Limited that such transactions with Temasek and its associates will continue to be entered into on normal commercial terms or on terms that are fair and reasonable and in the interests of the Group and the shareholders taken as a whole.
Further details of the Ongoing Banking Transactions are set out below.
Ongoing Banking Transactions
The Ongoing Banking Transactions constitute continuing connected transactions within the meaning of Chapter 14A of the Hong Kong Listing Rules. Set out below are details of such Ongoing Banking Transactions which may be entered into between members of the Group and Temasek or its associates in the ordinary and usual course of business and on normal commercial terms (and with reference to prevailing market rates) or in accordance with the practice commonly adopted in the market.
Data on Ongoing Banking Transactions between the Group and Temasek and its associates is provided below for the financial year ended 31 December 2009.
The Company will seek approval for the transactions contemplated under each of the Ongoing Banking Transactions for a period of three years from the date of the AGM i.e. until 7 May 2013 (which is consistent with the maximum fixed period for non-exempt continuing connected transactions under Rule 14A.35(1) of the Hong Kong Listing Rules), as well as approval for the Waiver (which, if Temasek remains a connected person of the Company, will need to be renewed every three years) from strict compliance with the requirement to set a maximum aggregate annual value or a 'cap' for each of these transactions with Temasek and its associates. As explained above, consistent with the purpose of the connected transaction rules and in line with the Company's running of its business, there will continue to be no favourable treatment afforded to Temasek or its associates and transactions with such persons will continue to be undertaken on normal commercial terms.
During the Relevant Period, there have not been any Physical Commodity Dealing Transactions, Secured Financial Assistance Transactions, Fund Management Services, Insurance Transactions, or standalone Sale and Purchase in connection with Asset Leasing Transactions, all as set out below, with Temasek or any of its associates. However, these types of transactions are in the ordinary and usual course of business of the Group and may become increasingly important to the Group in the near future. Accordingly, Independent Shareholder approval is being sought for these types of transactions which may also be undertaken with Temasek or its associates in future.
Each of the Ongoing Banking Transactions, including those referred to in the preceding paragraph, is or potentially will be carried out frequently, on a regular basis and where Temasek or any of its associates, as a client, will need or expect the transaction to be executed or the service to be provided quickly.
In respect of each of the Ongoing Banking Transactions described below, references to 'associates' of Temasek are to such associates of Temasek as the Company is able to identify using all reasonable efforts in the manner described above. Furthermore, information on volumes and values of transactions with Temasek and its associates in respect of Ongoing Banking Transactions during the Relevant Period (as applicable) includes all transactions during such period with any entity that was an associate of Temasek at any time during the period even if they have since ceased to be an associate of Temasek.
Foreign Exchange Transactions
Members of the Group enter into spot, forward and foreign exchange swap contracts with counterparties and clients, including Temasek and its associates, for the purpose of foreign exchange risk management and in response to customer-driven transactions.
The notional amount of the outstanding Foreign Exchange Transactions between the Group and Temasek and its associates as at 31 December 2009 was US$14,482 million. In the Relevant Period, the Group entered into 32,695 Foreign Exchange Transactions with a total of 97 companies which are associates of Temasek (as well as Temasek itself).
Derivatives and Financial Markets Transactions
The Group enters into over-the-counter and on-exchange derivatives transactions with clients and counterparties, including Temasek and its associates, which include swaps, forwards, options and combinations thereof on currencies, interest rates, commodities, credit risk, bonds, equities and any other classes of underlying prices, rates, indices or instruments. The Derivatives and Financial Markets Transactions are entered into for a variety of reasons, including to allow Temasek and its associates to hedge their exposure to an underlying asset class or for the purpose of taking a risk position in relation to that underlying asset class.
The notional amount of the outstanding Derivatives and Financial Markets Transactions between the Group and Temasek and its associates as at 31 December 2009 was US$47,739 million. In the Relevant Period, the Group entered into 7,336 Derivatives and Financial Markets Transactions with a total of 53 companies which are associates of Temasek.
Capital Markets Dealing Transactions
As part of its ordinary and usual course of business, the Group enters into capital markets dealing transactions with clients and counterparties, including Temasek and its associates, which include (but are not limited to) sales, purchases and participations of securities, loans and other financial instruments issued by independent third parties or by a member of the Group or by Temasek or any of its associates. From the Group's perspective, the Capital Markets Dealing Transactions are secondary market transactions for trading purposes.
The value of the Capital Markets Dealing Transactions between the Group and Temasek and its associates in the Relevant Period was US$32,486 million. In the Relevant Period, the Group entered into 3,939 Capital Markets Dealing Transactions with a total of 27 companies which are associates of Temasek.
Physical Commodity Dealing Transactions
In the ordinary and usual course of its business, members of the Group deal in physical commodities with clients and counterparties, which may include Temasek or any of its associates. Some of these transactions relate to financing transactions, such as inventory finance in which a member of the Group takes title to or a security interest in the relevant commodities, and have the benefit of the financial assistance exemptions in the Hong Kong Listing Rules. However, transactions entered into for hedging purposes in connection with commodity derivatives and some other transactions in physical commodities are not connected with a financing and are not, therefore, exempt under the Hong Kong Listing Rules.
Although the Group has not entered into any such transactions with Temasek or its associates during the Relevant Period, physical commodity dealing transactions are part of the ordinary and usual course of business of the Group. It is possible, therefore, that the Group may enter into such transactions with Temasek and any of its associates in the future and, accordingly, Physical Commodity Dealing Transactions have been included in the definition of Ongoing Banking Transactions for which Independent Shareholder approval is being sought.
Underwriting Transactions
In the ordinary and usual course of its business, members of the Group act as an underwriter on issues of equity securities by clients (which may include Temasek or any of its associates) and activities associated with the role of an underwriter including acting as a sponsor, bookrunner, global co-ordinator and stabilisation agent. These transactions would include underwriting issues of shares (including preference shares), convertible equity securities and warrants or similar rights to subscribe or purchase shares or convertible equity securities and may also include post-issue stabilisation activities. The underwriting would also involve the payment by the Temasek issuer to the Group of an underwriting or managing or structuring fee and, in the event that the issue of securities is not fully subscribed, may involve the relevant member of the Group acquiring a portion of the equity securities under the underwriting arrangements. Any such securities acquired will be held on the relevant member of the Group's underwriting or trading book but, in accordance with internal guidelines, will be sold on to an independent third party at the earliest opportunity.
The fee income in relation to the Underwriting Transactions provided to Temasek and its associates in the Relevant Period was US$3.2 million. In addition, in the Relevant Period, the Group entered into two Underwriting Transactions with two companies which are associates of Temasek.
Financial Assistance Transactions by Non-Banking Subsidiaries
Under the Hong Kong Listing Rules, certain financial assistance transactions entered into by banking companies which are duly licensed or authorised under the Banking Ordinance or under appropriate overseas legislation or authority are exempt from the connected transaction requirements of the Hong Kong Listing Rules (Rule 14A.65). However, there may be circumstances where a Non-Banking Subsidiary provides financial assistance in the ordinary course of its business to Temasek or its associates. Accordingly, Independent Shareholder approval is also being sought (on the basis that the financial assistance exemptions under the Hong Kong Listing Rules are ordinarily not available to such companies) to allow the Non-Banking Subsidiaries to continue to enter into Financial Assistance Transactions with Temasek and its associates as part of their ordinary course of business.
The Financial Assistance Transactions with clients and counterparties, including Temasek and its associates, include granting credit, lending money, providing security for or guaranteeing a loan. The notional amount of the outstanding Financial Assistance Transactions between the Non-Banking Subsidiaries within the Group and Temasek and its associates in the Relevant Period was US$297 million in relation to the transactions entered into in 2008. In addition, in the Relevant Period, no new Financial Assistance Transactions were entered into by Non-Banking Subsidiaries within the Group with Temasek or its associates.
Secured Financial Assistance Transactions
Under the Hong Kong Listing Rules, certain financial assistance transactions are exempt from the connected transaction requirements of the Hong Kong Listing Rules. However, there may be circumstances where a member of the Group is required to grant security, in the form of margin, collateral or similar arrangements in connection with financial assistance provided by Temasek or any of its associates, in the ordinary and usual course of its business and on normal commercial terms; for example, as part of repurchase, reverse repurchase or stock borrowing and lending transactions. In these circumstances, the financial assistance exemption under Rule 14A.65(4) is not available to the relevant member of the Group. Accordingly, Independent Shareholder approval is being sought to allow the Group to continue to enter into financial assistance transactions even where such margin, collateral or other security is required to be granted by the Group as part of its ordinary course of business. More information on such margin and collateral arrangements is set out below in the section headed 'Margin arrangements for OTC foreign exchange, derivatives, repo and stock lending transactions'.
Although the Group has not entered into any such transactions with Temasek or its associates during the Relevant Period, Secured Financial Assistance Transactions are part of the ordinary and usual course of business of the Group. It is possible, therefore, that the Group may enter into such transactions with Temasek and any of its associates in the future and, accordingly, Secured Financial Assistance Transactions have been included in the definition of Ongoing Banking Transactions for which Independent Shareholder approval is being sought.
Fund Management Services
The Group provides fund management services to clients and, in the future, may receives fund management services from third parties, which may include Temasek and its associates, including the provision of discretionary fund and asset management services. This would involve the payment by Temasek or any of its associates to the Group (and vice versa where Temasek or its associates is providing services to the Group) of fees and commission.
Although the Group has not entered into any such transactions with Temasek or its associates during the Relevant Period, fund management services are part of the ordinary and usual course of business of the Group. It is possible, therefore, that the Group may enter into such transactions with Temasek and any of its associates in the future and, accordingly, Fund Management Services have been included in the definition of Ongoing Banking Transactions for which Independent Shareholder approval is being sought.
Securities Services
The Group provides securities services to clients including Temasek and its associates which include the provision of custody, escrow agency, receiving bank, trustee, transfer agency, paying agency and funds administration and ancillary services, clearing and settlement services and facilities for custody clients to lend their securities.
The fee income in relation to the Securities Services provided to 18 companies which are associates of Temasek in the Relevant Period was US$3.2 million.
Cash Management Services
The Group provides cash management services to clients including Temasek and its associates, which include account services (payments and collections) to enable clients to operate their current, savings and other accounts, liquidity management services (including allowing clients to optimise interest earned from credit balances and to minimise interest charged on debit balances across a number of the client's accounts by transferring balances at the end of each day to a single master account ('sweeping') or by notionally aggregating the balances ('pooling') for the purpose of calculating the interest on the net balance of the client) and clearing services.
The gross revenue from Cash Management Services provided to 137 companies which are associates of Temasek in the Relevant Period was US$1.7 million.
Trade Services
The Group offers a wide range of trade finance products to clients including Temasek and its associates involving lending or other extensions of credit, including issuing, confirming, negotiating and discounting letters of credit; avalising, negotiating and discounting trade bills; import finance; export and pre-export finance; shipping guarantees; performance and financial guarantees and letters of indemnity. However, the Group also participates in some transactions and provides some services that do not involve credit exposure, including export bills collection, advising of letters of credit, document preparation, processing and checking services, safekeeping of documents and risk participation. These non-credit services are generally provided to the same clients that use the Group's credit products, which includes Temasek and its associates, and are often provided as part of an overall banking package.
The gross revenue from non-credit Trade Services provided to Temasek and its associates in the Relevant Period was US$0.3 million. Trade Services were provided to 34 companies which are associates of Temasek during that period.
Advisory and Arranging Services
The Group provides advisory and arranging services, in particular corporate finance and asset advisory and arranging services, arranging and advising on loans from third party lenders and public and private placements of securities (where the Group does not participate as lender, underwriter or subscriber) to clients including Temasek and its associates.
The fee income from the Advisory and Arranging Services provided to six companies which are associates of Temasek in the Relevant Period was US$0.3 million.
Brokerage Services
In the ordinary and usual course of its dealing businesses, members of the Group use brokerage services from brokers, and also provide brokerage services to clients, which may, in both cases, include associates of Temasek.
The fee income in relation to the Brokerage Services provided to Temasek and its associates in the Relevant Period was less than US$0.1 million and the fee paid to Temasek and its associates was less than US$0.1 million. The Group provided Brokerage Services to one company which is an associate of Temasek and used Brokerage Services from one company which is an associate of Temasek during that period.
Insurance Transactions
In the ordinary and usual course of its business, members of the Group purchase insurance cover against credit, political and event risks, which may include insurance cover from Temasek or its associates.
Although the Group has not entered into any such transactions with Temasek or its associates during the Relevant Period, Insurance Transactions are part of the ordinary and usual course of business of the Group. It is possible, therefore, that the Group may enter into such transactions with Temasek and any of its associates in the future and, accordingly, Insurance Transactions have been included in the definition of Ongoing Banking Transactions for which Independent Shareholder approval is being sought.
Sale and Purchase in connection with Asset Leasing Transactions
In its asset leasing business members of the Group enter into arrangements with clients including Temasek and its associates involving the purchase of assets for the purposes of leasing. As part of the lease arrangement or if the lease has expired or terminated, there may also be a sale of the asset to a client including Temasek and its associates.
Although the Group has not entered into any such standalone transactions with clients including Temasek and its associates during the Relevant Period, Sale and Purchase in connection with Asset Leasing Transactions are part of the ordinary and usual course of business of the Group. It is possible, therefore, that the Group may enter into such transactions with Temasek and any of its associates in the future and, accordingly, Sale and Purchase in connection with Asset Leasing Transactions have been included in the definition of Ongoing Banking Transactions for which Independent Shareholder approval is being sought.
Islamic Ongoing Banking Transactions
Like conventional banking transactions, certain Islamic Ongoing Banking Transactions are exempt from the connected transaction requirements of the Hong Kong Listing Rules if they fall within the definition of 'financial assistance'. Accordingly, Independent Shareholder approval is being sought for any Islamic Ongoing Banking Transactions which are variations of the conventional Ongoing Banking Transactions outlined above and which may not be exempt under the Hong Kong Listing Rules. Islamic variations are treated exactly as the corresponding Ongoing Banking Transactions and classified under the respective Ongoing Banking Transactions category above.
Margin arrangements for OTC foreign exchange, derivatives, repo and stock lending transactions
The Group, in line with most international banks, uses the ISDA master agreement to govern most of its 'over-the-counter' or 'OTC' transactions in foreign exchange and derivatives, the Global Master Repurchase Agreement to govern most of its repurchase and reverse repurchase transactions and the Securities Lending Agreement to govern most of its stock borrowing and lending transactions. These master agreements are bilateral agreements designed to govern a course of dealing in a wide range of OTC transactions, and one of their primary purposes is to reduce the credit exposure inherent in the underlying transactions by providing for the netting of the close out values of transactions in the event of a default or failure of one of the parties.
In order to reduce credit exposure further, banks will often include in their master agreements a Credit Support Annex (CSA) unless the master agreement itself already provides for the parties to post collateral with each other. The collateral would normally be in the form of cash or securities, in order to reduce the credit exposure of one party to the other represented by the net mark-to-market value of transactions between them at any given time. The obligation to post collateral is usually mutual and the amount of collateral posted will vary over time with changes in the net mark-to-market value of transactions outstanding.
Collateral arrangements through master agreements or CSAs are a very common feature, and inherent part, of the overall transactions between banks and between banks and corporates.
From time to time, the Group may have collateral arrangements in place with a number of Temasek associates as well as Temasek itself. The transactions with Temasek and its associates that are governed by a master agreement and CSA will either constitute 'financial assistance' provided by the Group to Temasek or its associates, which may be exempt under Rules 14A.65 to 14A.66 of the Hong Kong Listing Rules, or will be subject to Independent Shareholder approval as Ongoing Banking Transactions.
Therefore, the Company also seeks approval for such margin, collateral and other similar arrangements in connection with the Ongoing Banking Transactions with Temasek and its associates for a period of three years from the date of the AGM i.e. until 7 May 2013 (which is consistent with the maximum fixed period for non-exempt continuing connected transactions under Rule 14A.35(1) of the Hong Kong Listing Rules).
Annual cap
Pursuant to the Hong Kong Listing Rules, the Company is required to set a maximum aggregate annual value or a 'cap' for each of the Ongoing Banking Transactions with Temasek and its associates. However, The Stock Exchange of Hong Kong Limited has granted a Waiver (conditional on Independent Shareholder approval, which will need to be renewed every three years if Temasek remains a connected person of the Company) from strict compliance with this requirement on the basis of (but not limited to) the following:
(a) since each of the Ongoing Banking Transactions is entered into in the ordinary and usual course of business of the Group, the volume and aggregate value of each of these transactions varies from time to time and from year to year depending on a number of factors including (but not limited to) which companies constitute associates of Temasek, the range of banking products and services offered by the Group, and fluctuations in financial markets and economic conditions. In addition, given the volume and size of each of these transactions, it would be difficult and impracticable to estimate and set a maximum aggregate annual value for each of the transactions. Furthermore, references to previous figures for each of these transactions may not be a fair indication as to the expected value of the transactions for the next three years;
(b) in respect of some of the Ongoing Banking Transactions, such as Foreign Exchange Transactions, Derivatives and Financial Markets Transactions, Capital Markets Dealing Transactions and certain Secured Financial Assistance Transactions, these are generally entered into in response to customer demand, are sensitive to market rates and require execution in a very short timeframe. If the relevant transactions were to exceed the maximum aggregate annual value, the obligation to seek Independent Shareholder approval in accordance with Chapter 14A of the Hong Kong Listing Rules would cause significant delay to such transactions and, as such, the Group would not be able to provide a responsive service to Temasek and its associates. This would, in turn, significantly limit the existing operations and potential business growth of the Group to the detriment of the Company and its shareholders as a whole; and
(c) all of the Ongoing Banking Transactions with Temasek and its associates are, and will continue to be, entered into on an arm's length basis or on terms that are fair and reasonable and in the interests of the Group and the shareholders taken as a whole.
The Company also seeks approval of the Waiver that no maximum aggregate annual value or 'cap' be imposed on the Ongoing Banking Transactions in respect of such transactions for the three-year period ending 7 May 2013.
REASONS FOR THE ONGOING CONNECTED TRANSACTIONS
The directors (including the independent non-executive directors) consider that each of the Ongoing Banking Transactions has been or will be entered into in the ordinary course of business of the Group and on normal commercial terms or on terms that are fair and reasonable so far as the Independent Shareholders are concerned and are in the interests of the Group and the shareholders taken as a whole. The directors also consider it to be in the interests of the Group to engage in the Ongoing Banking Transactions with Temasek and its associates as each of such transactions is beneficial to the business and profitability of the Group.
Hong Kong Stock Exchange Consultation Paper on Proposed Changes to the Connected Transaction Rules
The Stock Exchange of Hong Kong Limited published a Consultation Paper on Proposed Changes to the Connected Transaction Rules in October 2009 (the "Consultation Paper"). One of the proposals in the Consultation Paper was to introduce a new exemption from the reporting, annual review, announcement and Independent Shareholders' approval requirements for revenue transactions in the ordinary and usual course of business of a listed issuer with associates of a substantial shareholder who is a passive investor in a listed issuer. Based on the criteria set out in paragraph 59 of the Consultation Paper and the draft Rule 14A.33(4), the Company considers that Temasek would constitute a passive investor in the Company. Therefore, if this proposal is adopted by way of amendment to the Hong Kong Listing Rules in substantially the same form as set out in the Consultation Paper, the Company would be able to rely on this exemption for revenue transactions from the date of the Rule change rather than having to rely on the waivers obtained from The Stock Exchange of Hong Kong Limited which relate to no written agreement and no annual cap in relation to any Ongoing Banking Transactions. However, there is no guarantee that the consultation exercise will result in the implementation of this change to the Hong Kong Listing Rules and The Stock Exchange of Hong Kong Limited has not yet published the results of the public consultation as at the date of this announcement.
INFORMATION ONTHE COMPANY AND TEMASEK
The Company
The Company, listed on both London and Hong Kong stock exchanges, ranks among the top 20 companies in the FTSE-100 by market capitalisation. The London-headquartered Group has operated for over 150 years in some of the world's most dynamic markets, leading the way in Asia, Africa and the Middle East. The Group has produced seven years of record income and profit, primarily as a result of organic growth.
Standard Chartered aspires to be the best international bank for its customers across its markets. The Group earns around 90 per cent of its income and profits in Asia, Africa and the Middle East, from its wholesale and consumer banking businesses. The Group has 1,700 branches and outlets located in 70 countries. The extraordinary growth of its markets and businesses creates exciting and challenging international career opportunities.
Leading by example to be the right partner for its stakeholders, the Group is committed to building a sustainable business over the long term and is trusted worldwide for upholding high standards of corporate governance, social responsibility, environmental protection and employee diversity. It employs around 75,000 people, nearly half of whom are women. The Group's employees are of 125 nationalities, of which about 70 are represented in the senior management.
Temasek
Temasek is an investment company headquartered in Singapore with a portfolio of investments that is concentrated principally in Singapore, Asia and the OECD economies. Temasek manages a diversified portfolio of S$172 billion as at 31 July 2009 spanning various industries including telecommunications and media, financial services, real estate, transportation and logistics, energy and resources, infrastructure, industrial and engineering and technology, and consumer and lifestyle. The number of subsidiaries of Temasek is in excess of 1,400 companies (which include Temasek wholly-owned investment vehicles, subsidiaries in Temasek's portfolio and their subsidiaries). Companies in Temasek's portfolio are managed by their respective management, and guided and supervised by their respective boards. Temasek does not direct the commercial or operational decisions of its portfolio companies. Temasek is wholly-owned by the Singapore Government through the Minister for Finance (Incorporated).
DESPATCH OF NOTICE OF ANNUAL GENERAL MEETING 2010
An Independent Board Committee, comprising Mr R H P Markham, Mr R Delbridge, Mr J F T Dundas, Ms R Markland and Mr J G H Paynter all being independent non-executive directors, has been appointed to advise the Independent Shareholders in respect of the Resolutions to be proposed at the AGM in relation to Temasek and its associates, including the Ongoing Banking Transactions. An Independent Financial Adviser, KBC Bank N.V. Hong Kong Branch, has been appointed to make recommendations to the Independent Board Committee and the Independent Shareholders on the fairness and reasonableness of the Resolutions and whether they are in the interests of the Company and the shareholders as a whole. The Notice of Annual General Meeting 2010 containing, amongst other things, (1) the recommendation of the Independent Board Committee, (2) the recommendation of the Independent Financial Adviser, and (3) the notice of AGM at which ordinary resolutions will be proposed to consider and, if thought fit, approve the various Temasek-related matters, will be despatched to the shareholders on or around 26 March 2010. Temasek and its associates will abstain from voting at the AGM in respect of the Resolutions.
DEFINITIONS
In thisAnnouncement, unless the context otherwise requires, the following words and phrases have the following meanings:
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'Advisory and Arranging Services' |
the advisory and arranging services transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Advisory and Arranging Services'
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'AGM' |
The Annual General Meeting of the Company to be held on 7 May 2010
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'associates' |
has the meaning ascribed thereto under the Hong Kong Listing Rules and in relation to Temasek, has a modified meaning so that it does not include the entities described below:
(a) the holding companies of 30% or more investee companies, which are not subsidiaries, of Temasek; (b) fellow subsidiaries of these holding companies; (c) a company in which a 30% or more investee company of Temasek is a 30% or more shareholder, and it is not a subsidiary of the investee company; and (d) the subsidiaries or holding companies of the company as described in paragraph (c) above or fellow subsidiaries of such holding companies
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'Banking Ordinance' |
the Banking Ordinance (Cap.155 of the Laws of Hong Kong)
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'Board' |
the Board of directors of the Company
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'Brokerage Services' |
the brokerage services transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Brokerage Services'
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'Capital Markets Dealing Transactions' |
the capital markets dealing transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Capital Markets Dealing Transactions'
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'Cash Management Services' |
the cash management services transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Cash Management Services'
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'Company' |
Standard Chartered PLC
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'Continuing Connected Transactions' |
has the meaning ascribed thereto under the Hong Kong Listing Rules and includes transactions contemplated under the Ongoing Banking Transactions
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'Derivatives and Financial Markets Transactions' |
the derivatives transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Derivatives and Financial Markets Transactions'
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'directors' |
the directors of the Company whose names are set out below
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'financial assistance' |
has the meaning ascribed to 'financial assistance' under the Hong Kong Listing Rules and includes granting credit, lending money, providing security for or guaranteeing a loan by any member of the Group
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'Financial Assistance Transactions' |
has the meaning ascribed to 'financial assistance' under the Hong Kong Listing Rules and includes granting credit, lending money, providing security for or guaranteeing a loan by Non‑Banking Subsidiaries to Temasek or any of its associates from time to time
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'Foreign Exchange Transactions' |
the foreign exchange transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Foreign Exchange Transactions'
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'Fund Management Services' |
the fund management services transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Fund Management Services'
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'Group' |
the Company and its subsidiaries
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'Hong Kong Listing Rules' |
the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
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'Independent Board Committee' |
the independent committee of the independent non-executive directors of the Company comprising Mr R H P Markham, Mr R Delbridge, Mr J F T Dundas, Ms R Markland and Mr J G H Paynter formed to advise the Independent Shareholders in respect of the Resolutions
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'Independent Financial Adviser' |
KBC Bank N.V., acting through its Hong Kong branch, a registered institution registered for 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
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'Independent Shareholders' |
shareholders other than Temasek and its associates
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'Insurance Transactions' |
transactions involving one or more members of the Group purchasing insurance cover from Temasek or any of its associates, details of which are set out under the heading 'Insurance Transactions'
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'Islamic Ongoing Banking Transactions' |
the Islamic Ongoing Banking transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Islamic Ongoing Banking Transactions'
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'Non-Banking Subsidiaries' |
subsidiaries of the Company that are not licensed or authorised to conduct banking business under the Banking Ordinance or under appropriate overseas legislation or authority
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'normal commercial terms' |
has the meaning ascribed thereto under the Hong Kong Listing Rules |
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'Ongoing Banking Transactions' |
include the Advisory and Arranging Services, the Brokerage Services, the Capital Markets Dealing Transactions, the Cash Management Services, the Derivatives and Financial Markets Transactions, the Financial Assistance Transactions, the Foreign Exchange Transactions, the Fund Management Services, the Insurance Transactions, the Islamic Ongoing Banking Transactions, the Physical Commodity Dealing Transactions, the Sale and Purchase in connection with Asset Leasing Transactions, the Secured Financial Assistance Transactions, the Securities Services, the Trade Services and the Underwriting Transactions
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'Physical Commodity Dealing Transactions' |
the physical commodity dealing transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Physical Commodity Dealing Transactions'
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'Relevant Period' |
the financial year ended 31 December 2009
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'Resolutions' |
the ordinary resolutions 29 to 31 relating to Ongoing Banking Transactions with Temasek and its associates to be considered at the AGM
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'Rules' |
the Hong Kong Listing Rules and the UK Listing Rules
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'Sale and Purchase in connection with Asset Leasing Transactions' |
the sale and purchase in connection with asset leasing transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) clients (including Temasek and any of its associates) from time to time, details of which are set out under the heading 'Sale and Purchase in connection with Asset Leasing Transactions'
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'Secured Financial Assistance Transactions' |
financial assistance transactions where security over the assets of a Group company is provided to Temasek or any of its associates in respect of the financial assistance, details of which are set out under the heading 'Secured Financial Assistance Transactions'
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'Securities Services' |
the securities services transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Securities Services Transactions'
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'SFO' |
the Securities and Futures Ordinance (Cap.571 of the Laws of Hong Kong)
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'shareholders' |
holders of the shares
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'shares' |
ordinary shares of US$0.50 each in the share capital of the Company
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'Temasek' |
Temasek Holdings (Private) Limited
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'Trade Services' |
the trade services transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Trade Services'
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'UK Listing Rules' |
the UK Listing Rules, which are part of the Financial Services Authority's UKLA Sourcebook
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'Underwriting Transactions' |
the underwriting transactions entered into, or to be entered into (as the context requires), between (a) members of the Group and (b) Temasek or any of its associates from time to time, details of which are set out under the heading 'Underwriting Transactions'
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'Waivers' |
the waivers from strict compliance with: (a) Rules 14A.37 to 14A.40 and 14A.45 in relation to the reporting and annual review requirements for the Ongoing Banking Transactions with associates of Temasek that the Company has not been able to identify; and (b) Rules 14A.35(1) and (2) in relation to the requirements of entering into written agreements and setting annual caps for the Ongoing Banking Transactions with Temasek and its associates,
granted by The Stock Exchange of Hong Kong Limited on 9 February 2010
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By Order of the Board
Annemarie Durbin
Group Company Secretary
Hong Kong, 25 March 2010
As of the date of this announcement, the Board of Directors of the Company comprises:
Chairman:
Mr John Wilfred Peace
Executive Directors:
Mr Peter Alexander Sands, Mr Stefano Paolo Bertamini, Mr Jaspal Singh Bindra, Mr Gareth Richard Bullock, Mr Richard Henry Meddings and Mr Alun Michael Guest Rees
Independent Non-Executive Directors:
Mr Richard Delbridge, Mr James Frederick Trevor Dundas, Ms Valerie Frances Gooding CBE, Dr Han Seung-soo KBE, Mr Rudolph Harold Peter Markham (Senior Independent Director), Ms Ruth Markland, Mr John Gregor Hugh Paynter, Mr Paul David Skinner and Mr Oliver Henry James Stocken
This information is provided by RNS
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