Last checked at 27 Aug 2008 07:00
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(a joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock Code: 753)
REVISED ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS
AND
CONTINUING CONNECTED TRANSACTIONS WITH CNACG
| SUMMARY On 26 August 2008, the Company entered into (1) a supplemental agreement to each of the Comprehensive Services Agreement and the Properties Leasing Framework Agreement with CNAHC and a supplemental agreement to the Advertising Services Framework Agreement with CNAMC to revise the annual caps for the continuing connected transactions under the Comprehensive Services Agreement and the Properties Leasing Framework, and set annual caps for the continuing connected transactions under the Advertising Services Framework Agreement for the years ended 31 December 2008 and 2009; and (2) the Framework Agreement with CNACG in relation to various continuing connected transactions between the Group and CNACG Group. CNACG is a substantial shareholder and therefore a connected person of the Company. As such, the transactions contemplated under the Framework Agreement constitute continuing connected transactions of the Company under the Listing Rules. As each of the Percentage Ratios (other than the profits ratio) of the continuing connected transactions under (1) the Comprehensive Services Agreement and the Properties Leasing Framework Agreement with the revised annual caps and the Advertising Services Framework with the annual caps newly set for the years ended 31 December 2008 and 2009, and (2) the Framework Agreement with the annual caps for the years ended 31 December 2008, 2009 and 2010, is higher than 0.1% and less than 2.5%, such continuing connected transactions therefore fall under Rule 14A.34 of the Listing Rules. Accordingly, these continuing connected transactions are subject to the reporting and announcement requirements set out under Rules 14A.45 to 14A.47 of the Listing Rules, but are exempt from the requirements of the independent shareholders' approval under Chapter 14A of the Listing Rules. |
On 26 August 2008, the Company entered into (1) a supplemental agreement to each of the Comprehensive Services Agreement and the Properties Leasing Framework Agreement with CNAHC and a supplemental agreement to the Advertising Services Framework Agreement with CNAMC to revise the annual caps for the continuing connected transactions under the Comprehensive Services Agreement and the Properties Leasing Framework, and set annual caps for the continuing connected transactions under the Advertising Services Framework Agreement for the years ended 31 December 2008 and 2009; and (2) the Framework Agreement with CNACG in relation to various continuing connected transactions between the Group and CNACG Group.
REVISED ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS
(1) Comprehensive Services
Reference is made to the section headed "CONTINUING CONNECTED TRANSACTIONS EXEMPT FROM THE INDEPENDENT SHAREHOLDERS' APPROVAL REQUIREMENTS - 4.4 Comprehensive Services" in the Company's circular dated 1 December 2006 relating to the Comprehensive Services Agreement, under which CNAHC Group provides the Group with various ancillary services, including catering services, supply of various items for in-flight services, warehousing services and etc. The annual caps for the years ended 31 December 2008 and 2009 were estimated to be RMB90 million and RMB100 million, respectively.
The Directors have been monitoring the amounts of the transactions under the Comprehensive Services Agreement, having regard to internal estimates of demand and operating conditions.
Since the announcement of the Comprehensive Services Agreement and the related annual caps for the amount to be paid by the Group to the CNAHC Group under the Comprehensive Services Agreement for the years ended 31 December 2007, 2008 and 2009, the Directors have noted that the caps for the years ended 31 December 2008 and 2009 will not be sufficient to meet the requirements of the Group's operations for the following reasons:
• On 10 June 2008, CNAC, a wholly-owned subsidiary of the Company, entered into a share transfer agreement by which CNAC, among others, transferred to CNACG its indirect 60% shareholding in each of Southwest Air Catering and Beijing Air Catering which then became the subsidiaries of CNACG (please refer to the Company's announcement dated 10 June 2008 for details). CNACG is a substantial shareholder of the Company and a wholly-owned subsidiary of the Company's controlling shareholder CNAHC. Since Southwest Air Catering and Beijing Air Catering have become associates of CNAHC (other than the members of the Group), they are the connected persons of the Company. The Group has been receiving catering services from Beijing Air Catering and Southwest Air Catering. Upon completion of the share transfer, the abovementioned transactions between the Group and Southwest Air Catering and Beijing Air Catering would constitute continuing connected transactions under the Listing Rules and become the continuing connected transactions under the Comprehensive Services Agreement between the Company and CNAHC. The approximate annual amounts paid by the Group to Beijing Air Catering and Southwest Air Catering for catering services for the years ended 31 December 2006 and 2007 are as follows:
| 2006 Annual Amount Paid by the Company | 2007 Annual Amount Paid by the Company | |
| Beijing Air Catering | RMB243 million | RMB268 million |
| Southwest Air Catering | RMB71 million | RMB73 million |
| Total | RMB314 million | RMB341 million |
• Apart from acquiring interest in Beijing Air Catering and Southwest Air Catering, CNACG is continuing to expand its investment in in-flight catering businesses. As part of such effort, it has incorporated Chongqing Air Catering Company Limited. The Company expects that CNAHC Group will provide more catering services to the Group.
• the Company's fleet has grown by 23 aircraft to 221 aircraft (excluding freighters of Air Cargo) since the end of 2006, which has increased the Company's demand for in-flight catering services.
Accordingly, it is proposed that the annual caps for the continuing connected transactions under the Comprehensive Services Agreement in the years ended 31 December 2008 and 2009 be revised as set out in the following table:
| Transaction | Historical Annual Transaction Amount for the Year Ended 31 December 2007 | Existing Annual Caps | Revised Annual Caps | ||
| For the Year Ended 31 December 2008 | For the Year Ended 31 December 2009 | For the Year Ended 31 December 2008 | For the Year Ended 31 December 2009 | ||
| Amount to be paid by the Group to CNAHC Group under the Comprehensive Services Agreement | RMB79 million | RMB90 million | RMB100 million | RMB650 million | RMB750 million |
As each of the Percentage Ratios (other than the profits ratio) of the continuing connected transactions under the Comprehensive Services Agreement with the revised annual caps set out above, is higher than 0.1% and less than 2.5%, they therefore fall under Rule 14A.34 of the Listing Rules. Accordingly, these continuing connected transactions are subject to the reporting and announcement requirements set out under Rules 14A.45 to 14A.47 of the Listing Rules, but are exempt from the requirements of the independent shareholders' approval under Chapter 14A of the Listing Rules.
(2) Property Lease
Reference is made to the section headed "CONTINUING CONNECTED TRANSACTIONS EXEMPT FROM THE INDEPENDENT SHAREHOLDERS' APPROVAL REQUIREMENTS - 4.2 Property Leasing" in the Company's circular dated 1 December 2006 relating to the Properties Leasing Framework Agreement, under which the Group leases from CNAHC Group properties for various uses including as business premises, offices and storage facilities properties. The annual caps for rent paid by the Group to CNAHC Group under the Properties Leasing Framework Agreement for the years ended 31 December 2008 and 2009 were estimated to be RMB60 million and RMB70 million, respectively.
The Directors have been monitoring the amounts of the transactions under the Properties Leasing Framework Agreement, having regard to internal estimates of demand and operating conditions.
Since the announcement of the Properties Leasing Framework Agreement and the related annual caps for the rent paid by the Group to CNAHC Group in the years ended 31 December 2007, 2008 and 2009, the Directors have noted that the caps for 2008 and 2009 will not be sufficient to meet the requirements of the Group's operations for the following reasons:
• CNAC was privatised by the Company in 2007 and became the wholly-owned subsidiary of the Company. CNAC's continuing connected transactions existing before the privatization relating to its leasing properties from CNACG should be taken into account under the Properties Leasing Framework Agreement between the Group and CNAHC Group. The annual amounts paid by CNAC to CNACG for property leasing in the years ended 31 December 2006 and 2007 are as follows:
| Transaction | 2006 Annual Amount | 2007 Annual Amount |
| Rent paid by CNAC to CNACG | RMB4.5 million | RMB16.25 million |
• Along with the growth of the Company's business, the Group needs to lease more properties from CNAHC Group. For instance, the Company has leased aviation express warehouse with 2,000 meter square from CNAHC in January 2008. The rent rate of the property leasing market has been increasing which has contributed to the continuing increase of the transaction amount of property leasing between the Group and CNAHC Group.
Accordingly, it is proposed that the annual caps for the continuing connected transactions under the Properties Leasing Framework Agreement in the years ended 31 December 2008 and 2009 be revised as set out in the following table:
| Transaction | Historical Annual Transaction Amount for the Year Ending 31 December 2007 | Existing Annual Caps | Revise Annual Caps | ||
| For the Year Ended 31 December 2008 | For the Year Ended 31 December 2009 | For the Year Ended 31 December 2008 | For the Year Ended 31 December 2009 | ||
| Rent to be paid by the Group to CNAHC Group under the Properties Leasing Framework Agreement | RMB53 million | RMB60 million | RMB70 million | RMB85 million | RMB95 million |
As each of the Percentage Ratios (other than the profits ratio) of the continuing connected transactions under the Properties Leasing Framework Agreement with the revised annual caps set out above, is higher than 0.1% and less than 2.5%, they therefore fall under Rule 14A.34 of the Listing Rules. Accordingly, these continuing connected transactions are subject to the reporting and announcement requirements set out under Rules 14A.45 to 14A.47 of the Listing Rules, but are exempt from the requirements of independent shareholders' approval under Chapter 14A of the Listing Rules.
(3) Media and Advertising Services
Reference is made to the section headed "DE MINIMUS CONTINUING CONNECTED TRANSACTIONS - 3.1 Media and Advertising Services" in the Company's circular dated 1 December 2006 relating to the Advertising Services Framework Agreement, under which, among others, CNAMC, a wholly-owned subsidiary of CNAHC, provides the Company with in-flight entertainment programmes it produces and bid for advertisement agency and design services to the Company. The maximum annual amounts to be paid by the Company to CNAMC under the Advertising Services Framework Agreement for each of the three years ended 31 December 2007, 2008 and 2009 were expected to fall below the de minimus threshold as stipulated under Rule 14A.33(3) of the Listing Rules, therefore such transaction were exempt from the announcement and independent shareholders' approval requirement for connected transactions.
The Directors have been monitoring the amounts of the transactions under the Advertising Services Framework Agreement, having regard to internal estimates of demand and operating conditions.
Since the announcement of the Advertising Services Framework Agreement, the Directors have noted that the estimated maximum annual amounts to be paid by the Company to CNAMC in each of the years ended 31 December 2008 and 2009 will not be sufficient to meet the requirements of the Group's operations for the following reasons:
• the Company's fleet has grown by 23 aircraft to 221 aircraft (excluding freighters of Air Cargo) since the end of 2006 and therefore need more in-flight entertainment programmes.
• Due to the development of the Group's businesses and, in particular, the 2008 Olympic Games, the Group needs more advertisement agency services. CNAMC has bided for and is providing the Group with increasing advertisement agency services.
Accordingly, it is proposed that the annual caps for the continuing connected transactions under the Advertising Services Framework Agreement for the years ended 31 December 2008 and 2009 be as set out in the following table:
| Transaction | Historical Annual Transaction Amount for the Year Ended 31 December 2007 | Existing Annual Caps | Revise Annual Caps | ||
| For the Year Ended 31 December 2008 | For the Year Ended 31 December 2009 | For the Year Ended 31 December 2008 | For the Year Ended 31 December 2009 | ||
| Amount to be paid by the Company to CNAMC under the Advertising Services Framework Agreement | RMB31.87 million | Below the de minimis threshold | Below the de minimis threshold | RMB60 million | RMB60 million |
As each of the Percentage Ratios (other than the profits ratio) of the continuing connected transactions under the Advertising Services Framework Agreement with the annual caps set out above, is higher than 0.1% and less than 2.5%, they therefore fall under Rule 14A.34 of the Listing Rules. Accordingly, these continuing connected transactions are subject to the reporting and announcement requirements set out under Rules 14A.45 to 14A.47 of the Listing Rules, but are exempt from the requirements of independent shareholders' approval under Chapter 14A of the Listing Rules.
CONTINUING CONNECTED TRANSACTIONS WITH CNACG
Framework Agreement dated 26 August 2008
Parties: (1) the Company
(2) CNACG
Background and Particulars
Reference is made to the announcement dated 10 June 2008 issued by the Company in respect of a share transfer agreement entered into by CNAC, a wholly-owned subsidiary of the Company, and CNACG on 10 June 2008, by which CNAC, among others, transferred its 50% shareholding in JASL to CNACG (please refer to the Company's announcement dated 10 June 2008 for details). As CNACG is both a substantial shareholder of the Company and a wholly-owned subsidiary of CNAHC, the Company's controlling shareholder, upon the completion of the share transfer, JASL became an associate of CNACG and therefore a connected person of the Company under the Listing Rules. JASL has been providing the Company with ground handling services and engineering services. Such transactions will constitute continuing connected transactions of the Company under the Listing Rules.
Other than the ground handling services, the Group and CNACG Group have cooperated in other aspects, including but not limited to the provision of catering services, management services, properties leasing by CNACG Group to the Group. Since CNACG is the wholly-owned subsidiary of CNAHC, some continuing connected transactions such as catering and properties leasing shall be covered by the CNAHC Framework Agreements between the Company and CNAHC.
In part as a reflection of the abovementioned transactions and the expected increased cooperation between the Group and CNACG Group, the Company and CNACG entered into a Framework Agreement on 26 August 2008 in respect of Relevant Agreements between the Group and CNACG Group. The Framework Agreement applies to Transactions under Relevant Agreements in the three years ended on 31 December 2010.
The Framework Agreement provides the framework under which Relevant Agreements between members of the Group on the one hand and members of CNACG Group on the other hand are entered into, renewed and extended.
The Transactions are transactions between members of the Group on the one hand and members of CNACG Group on the other hand relating to ground handling and engineering services, management services and other services and transactions as may be agreed by parties to be undertaken under the Framework Agreement excluding those which have been contemplated by the related CNAHC Framework Agreements.
The Framework Agreement applies to Transactions undertaken pursuant to Relevant Agreements during the three years ended on 31 December 2010 and shall expire on that date. However, the Framework Agreement shall be renewed for successive periods of three years thereafter unless either party to it gives to the other notice of termination of not less than three months expiring on any December 31. A party may terminate the Framework Agreement with immediate effect by notice to the other party in the event of material default by that other party or that other party's insolvency.
The annual caps
The annual caps for the Transactions have been determined by reference to the forecast payments in respect of the Transactions to be made by the Group to CNACG Group in the 3 years ended 31 December 2010 and the projections of the Group in respect of its fleet sizes, annual aircraft utilisation and other operating parameters, and having taken into account the growth of the Company's fleet (with 24 passenger aircraft scheduled for delivery in 2008) and passenger numbers (which recorded a 9.7% growth in 2007).
The Directors estimate that the amounts payable by the Group to CNACG Group, in respect of the Transactions in the years ended 31 December 2008, 2009 and 2010 will not exceed the annual caps set out below.
| 2008 | 2009 | 2010 | |
| Cap | Cap | Cap | |
| Annual Amount Paid by the Group to CNACG | RMB300 million | RMB300 million | RMB300 million |
The Company estimates that, within the annual caps above, the annual amounts payable by the Group to CNACG Group for the years ended 31 December 2008, 2009 and 2010 for ground handling and engineering services will not exceed RMB245 million and the annual amounts for the management services and other services and transactions entered into under the Framework Agreement will not exceed RMB55 million.
Reasons for, and benefits of, the Transactions
JASL had been providing ground services to the Company before CNAC transferred its interest in JASL to CNACG. In addition, the Group has entered into a series of continuing connected transactions with CNACG Group in its ordinary and usual course of business. CNACG possesses ample management expertise and financial resources on flight catering, airport ground handling and logistics businesses and is able to provide quality services to the Group.
Connection between the parties
CNACG, by virtue of its 11.26% shareholding in the Company, is a substantial shareholder and therefore a connected person of the Company under the Listing Rules.
Compliance with Listing Rules
As each of the Percentage Ratios (other than the profits ratio) of the Transactions under the Framework Agreement with the annual caps set out above, is higher than 0.1% and less than 2.5%, the Transactions therefore fall under Rule 14A.34 of the Listing Rules. Accordingly, the Transactions are subject to the reporting and announcement requirements set out under Rules 14A.45 to 14A.47 of the Listing Rules, but are exempt from the requirements of independent shareholders' approval under Chapter 14A of the Listing Rules.
The maximum aggregated annual amount to be paid by CNACG to the Company under the Framework Agreement for each of the three years ended 31 December 2008, 2009 and 2010 is expected to fall below the de minimus threshold as stipulated under Rule 14A.33(3) of the Listing Rules. Therefore, such transaction will be exempt from the announcement and independent shareholders' approval requirement for connected transactions.
The Company will comply with the continuing obligations under Rules 14A.37-41 of the Listing Rules and will re-comply with the relevant Listing Rules if the annual caps are exceeded, when the Framework Agreement is renewed or when there is a material change to its terms.
OPINION OF THE DIRECTORS
The Directors, including the independent non-executive directors, consider that the terms of the supplemental agreement to each of the Comprehensive Services Agreement, the Properties Leasing Framework Agreement, the Advertising Services Framework Agreement and the Framework Agreement are fair and reasonable and in the interests of the Company and its shareholders as a whole and have been negotiated on an arm's length basis in the usual and ordinary course of business, and on normal commercial terms or on terms no less favorable than those available to independent third parties. The newly-set annual caps and the revised annual caps, as the case may be, for the abovementioned continuing connected transactions are fair and reasonable.
Definitions
| "Advertising Services Framework Agreement" | a media and advertising services framework agreement and a supplemental agreement thereto entered into by the Company and CNAMC on 1 November 2004 and on 10 November 2006, respectively |
| "the Company" | Air China Limited, a company incorporated in the People's Republic of China, whose H shares are listed on the Stock Exchange as its primary listing venue and on the Official List of the UK Listing Authority as its secondary listing venue, and whose A shares are listed on the Shanghai Stock Exchange. The principal activity of the Company is the operation of scheduled airline services |
| "the Group" | the Company and its subsidiaries |
| "Beijing Air Catering" | Beijing Air Catering Co., Ltd., a company incorporated under the laws of the PRC |
| "CNAC" | China National Aviation Company Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of the Company as at the date of this announcement |
| "CNACG" | China National Aviation Corporation (Group) Limited, a company incorporated under the laws of Hong Kong and a wholly-owned subsidiary of CNAHC as at the date of this announcement. CNACG is primarily engaged in managing the holding company of CNACG Group and the state-owned assets and equity in various companies |
| "CNACG Group" | CNACG and its associates |
| "CNAHC" | China National Aviation Holding Company, a company incorporated under the PRC law. CNAHC is primarily engaged in managing the holding company of CNAHC Group and the state-owned assets and equity it holds in various companies |
| "CNAHC Framework Agreements" | Framework agreements and supplemental agreements thereto entered into by the Company and CNAHC on 1 November 2004 and 10 November 2006, respectively, relating to various continuing connected transactions between the Group and CNAHC Group |
| "CNAHC GROUP" | CNAHC and its associates |
| "CNAMC" | China National Aviation Media and Advertisement Co., Ltd, a company incorporated under the PRC law and a wholly-owned subsidiary of CNAHC. CNAMC is primarily engaged in media and advertising business |
| "Comprehensive Services Agreement" | a comprehensive services agreement and a supplemental agreement thereto entered into by the Company and CNAHC on 1 November 2004 and 10 November 2006, respectively |
| "Directors" | the directors of the Company |
| "Group" | the Company and its subsidiaries |
| "Framework Agreement" | the framework agreement dated 26 August 2008 between the Company and CNACG under which a framework is provided for entry into the Relevant Agreements |
| "HK$" | Hong Kong dollars, the lawful currency of Hong Kong |
| "Hong Kong" | the Hong Kong Special Administrative Region of the PRC |
| "JASL" | Jardine Airport Services Limited, a company incorporated under the laws of Hong Kong |
| "Listing Rules" | The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited |
| "PRC" | the People's Republic of China, excluding, for the purpose of this announcement only, Hong Kong, the Macau Special Administrative Region and Taiwan |
| "Properties Leasing Framework Agreement" | a leasing framework agreement and a supplemental agreement thereto entered in between the Company and CNAHC on 1 November 2004 and 10 November 2006, respectively |
| "Relevant Agreements" | the agreements between members of the Group on the one hand and members of the CNACG on the other hand in respect of the Transactions |
| "Southwest Air Catering" | Southwest Air Catering Company Limited, a company incorporated under the laws of the PRC |
| "Specified Items" | the in-flight magazines, in-flight entertainment programmes, boarding passes and certain other items specified in the Advertising Services Framework Agreement |
| "Stock Exchange" | The Stock Exchange of Hong Kong Limited |
| "Transactions" | transactions between members of the Group on the one hand and members of CNACG Group on the other hand in connection with the transactions arising from the provision of management services, engineering and ground handling services by CNACG Group to the Group and other services as may be agreed by parties to be undertaken under the Framework Agreement excluding those which have been contemplated by the related CNAHC Framework Agreements |
| "US$" | United States dollars, the lawful currency of the United States |
By order of the Board
Air China Limited
Huang Bin Li Man Kit
Joint Company Secretaries
Beijing, 26 August 2008
As at the date of this announcement, the Directors of the Company are Messrs Kong Dong, Wang Shixiang, Ma Xulun, Christopher Dale Pratt, Chen Nan Lok, Philip, Cai Jianjiang, Fan Cheng, Hu Hung Lick, Henry*, Wu Zhipan*, Zhang Ke* and Jia Kang*.
Independent non-executive Director of the Company