8 Apr 2016 14:52
ZHEJIANG EXPRESSWAY CO LD - Continuing Connected TransactionZHEJIANG EXPRESSWAY CO LD - Continuing Connected Transaction
PR Newswire
London, April 8
Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited take no responsibility for the contents of this announcement, 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 announcement.
Zhejiang Expressway Co. Ltd(A joint stock limited company incorporated in the People's Republic of China with limited liability)(Stock code: 0576)
CONTINUING CONNECTED TRANSACTIONS
ROAD MAINTENANCE AGREEMENTS
On 25 November 2015, the Company organized a public tender in respect of the provision of Maintenance Services to the Group's four expressways for a term of three years from 1 January 2016 to 31 December 2018. Maintenance Co succeeded in the tender and was awarded a contract to provide such Maintenance Services.
On 8 April 2016, the Company and the relevant subsidiaries of the Company entered into a number of road maintenance agreements with Maintenance Co, pursuant to which Maintenance Co agreed to provide the Maintenance Services to the Group's four expressways, namely: the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway, Jinhua section, Ningbo-Jinhua Expressway and the Hanghui Expressway. Each of the Road Maintenance Agreements has a term of three years from 1 January 2016 to 31 December 2018. Under the Listing Rules, these road maintenance agreements shall be aggregated as if they were one transaction.
LISTING RULES IMPLICATIONS
As at the date of this announcement, Communications Group holds approximately 67% of the issued share capital of the Company. By virtue of this shareholding interest, Communications Group is a controlling shareholder of the Company. Therefore, Maintenance Co, as a wholly-owned subsidiary of Communications Group, is a connected person of the Company and as a result, under the Chapter 14A of the Listing Rules the transactions under the Road Maintenance Agreements constitute the continuing connected transactions for the Company.
As the relevant percentage ratios in respect of the Aggregate Annual Caps under the Road Maintenance Agreements are over 0.1% but less than 5%, the Road Maintenance Agreements are subject to the reporting, announcement and annual review requirements but exempt from the independent Shareholders' approval requirement under the Listing Rules.
ROAD MAINTENANCE AGREEMENTS
Principal terms of the Road Maintenance Agreements are set out below:
| Date: | 8 April 2016 |
| Parties: | (1) the Company and the relevant subsidiaries of the Company (including Shangsan Co, Jiaxing Co, Jinhua Co and Hanghui Co); and (2) Maintenance Co. |
| Term: | the term of each of the Road Maintenance Agreements is for a period of three years from 1 January 2016 to 31 December 2018. |
| Subject matter: | Maintenance Co agreed to provide the Maintenance Services, namely day-to-day maintenance services including road patrol, inspection of the maintenance status of pavements, roadbeds, greening and sloping, in respect of the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway Jinhua section, Ningbo-Jinhua Expressway and the Hanghui Expressway. |
| Service fee and basis of the fee: | Subject to the price adjustment as set out below, the total service fees payable by the Group to Maintenance Co under the Road Maintenance Agreements shall be RMB182,307,362 (the "Service Fee"). The Service Fee was determined as a result of a public tender (the "Public Tender") of the Maintenance Services for the Target Expressways, where Maintenance Co has succeeded in its bid pursuant to the terms of the Public Tender. On 25 November 2015, a tender notice in respect of the Public Tender was published on the Company's website and www.chinabidding.com.cn. Five entities (two of them are independent suppliers) expressed their interest so each of them made the relevant payment to the Company to obtain the tender documents of the Public Tender. After their internal consideration, three entities (all of them are connected persons of the Group) eventually submitted their tender. Tender evaluation was conducted by a committee consisting of five experts in this industry. The committee took into account the following in evaluation before deciding to recommend to accept the tender submitted by Maintenance Co: (1) technical and financial capability of each of the tenderers; (2) each tenderer's past performance records in respect of the Maintenance Services for the Target Expressways and/or other expressways in the PRC; and (3) each tenderer's tendered price in respect of the Maintenance Services for the Target Expressways. To ensure that the terms offered by Maintenance Co are fair, reasonable and no less favourable than those provided by the independent third parties to the Group, the Company has additionally obtained quotations from two independent suppliers (which are qualified service providers for the Maintenance Services) in relation to the Maintenance Services. The contract price offered by each of these two independent suppliers is higher than the one offered by Maintenance Co. After considering (i) the historical maintenance cost incurred for the Group's expressways in 2014 and 2015; (ii) the expected maintenance work for the Group's expressways in 2016, 2017 and 2018; (iii) terms offered by Maintenance Co and two other independent suppliers and (iv) background, qualifications and financial position of each of Maintenance Co and two other independent suppliers, the management of the Company has decided to accept the committee's recommendation and award a contract of the Maintenance Services to Maintenance Co. |
| Price adjustment mechanism: | Subject to the Aggregate Annual Caps, commencing from 1 January 2017, the charges of the Maintenance Services may be adjusted based on the CPI of the preceding year, provided that no adjustment will be made if the change in the CPI compared to the preceding year is 1% or less. If the change in the CPI exceeds 1% compared to the preceding year, the charges will be adjusted according to such change in the CPI. In addition, subject to the Aggregate Annual Caps, in the event that the actual construction work conducted by Maintenance Co exceeds the expected work as contemplated under the relevant tender documents, the Service Fee may be subject to a slight upward adjustment provided that such additional work and additional fee have been checked and approved by the management of the Company. |
| Terms of payment: | Payment will be made by the Company based on the actual Maintenance Services provided by Maintenance Co on a monthly basis. |
Aggregate Annual Caps for the Road Maintenance Agreements
For the purpose of complying with the Chapter 14A of the Listing Rules, subject to the Service Fee (subject to price adjustment), the Company has set an aggregated annual cap for Road Maintenance Agreements. For the three years ending 31 December 2016, 2017 and 2018, subject to the Service Fee, the aggregate annual service fees payable by the Group to Maintenance Co in respect of the Maintenance Services shall not exceed RMB85 million, RMB85 million and RMB85 million, respectively.
Historically, the Maintenance Services in respect of the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway and Jinhua section, Ningbo-Jinhua Expressway were mainly carried out by Maintenance Co which was a wholly-owned subsidiary of the Company. On 14 September 2015, the entire equity interest in Maintenance Co was sold to the Communications Group. For the two years ending 31 December 2014 and 2015, the total daily maintenance cost incurred for the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway and Jinhua section, Ningbo-Jinhua Expressway was approximately RMB70.39 million and approximately RMB70.96 million, respectively.
The Company acquired the 80.614% equity interest in the Hanghui Expressway from the Communications Group and such acquisition was completed on 10 November 2015. So the Group's historical maintenance cost as set out above does not reflect the relevant cost for the Hanghui Expressway in 2014 and 2015.
In arriving at the above Aggregate Annual Caps, our Directors have considered factors including:
(a) the historical maintenance cost incurred for the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway and Jinhua section, Ningbo-Jinhua Expressway in 2014 and 2015;
(b) the expected maintenance work required for the Hanghui Expressway in 2016, 2017 and 2018; and
(c) the expected maintenance work required for the Shanghai-Hangzhou-Ningbo Expressway, the Shangsan Expressway and Jinhua section, Ningbo-Jinhua Expressway in 2016, 2017 and 2018.
REASONS FOR AND BENEFITS OF THE TRANSACTIONS
The Maintenance Services is vital and necessary for the operation of the Group's expressways. Maintenance Co has the relevant qualifications and expertise to provide such services to the Company. In addition, the Company went through a tender process and obtained the relevant quotations from independent third parties to select the service provider of the Maintenance Services. Maintenance Co finally won the tender. Besides, on the basis of the quotations provided by the two independent suppliers, the terms offered by Maintenance Co are no less favourable than those provided by the independent third parties to the Group.
Given the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the Road Maintenance Agreements are on normal commercial terms, in the ordinary and usual course of business of the Company and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.
LISTING RULES IMPLICATIONS
As at the date of this announcement, Communications Group holds approximately 67% of the issued share capital of the Company. By virtue of this shareholding interest, Communications Group is a controlling shareholder of the Company. Therefore, Maintenance Co, as a wholly-owned subsidiary of Communications Group, is a connected person of the Company and as a result, the transactions under the Road Maintenance Agreements constitute connected transactions for the Company pursuant to the Listing Rules.
As the relevant percentage ratios in respect of the Aggregate Annual Caps under the Road Maintenance Agreements are over 0.1% but less than 5%, the Road Maintenance Agreements are subject to the reporting, announcement and annual review requirements but exempt from the independent Shareholders' approval requirement under Rule 14A.36 of the Listing Rules.
Each of Mr. Zhan Xiaozhang, Mr. Wang Dongjie, Mr. Dai Benmeng and Mr. Zhou Jianping holds certain senior position in Communications Group, so they have abstained from voting on the board resolution with respect to the approval of the Road Maintenance Agreements. Save for Mr. Zhan Xiaozhang, Mr. Wang Dongjie, Mr. Dai Benmeng and Mr. Zhou Jianping, none of the Directors has any material interest in the Road Maintenance Agreements or is required to abstain from voting on the relevant Board resolutions to approve the same.
INFORMATION ON THE PARTIES
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 operation of gas stations, restaurants and shops in service areas, advertising at expressway interchanges and external road maintenance, as well as securities related business.
Maintenance Co is an indirect wholly-owned subsidiary of Communication Group which is incorporated under the laws of the PRC on 28 January 2014. Maintenance Co is principally engaged in construction of transportation projects and maintenance of toll road.
DEFINITIONS
In this announcement, unless the context specifies otherwise, the following defined expressions have the following meanings:
| "Aggregate Annual Caps" | the aggregate annual fees payable by the Group to Maintenance Co for the Maintenance Services under Road Maintenance Agreements for the three years ending 31 December 2016, 31 December 2017 and 31 December 2018, respectively, details of which are set out in this announcement |
| "Board" | the board of Directors |
| "Communications Group" | (Zhejiang Communications Investment Group Co., Ltd.*), a wholly State-owned enterprise established in the PRC, and the controlling shareholder of the Company |
| "Company" | Zhejiang Expressway Co., Ltd., a joint stock limited company incorporated in the PRC with limited liability |
| "connected person" | has the meaning ascribed to it under the Listing Rules |
| "controlling shareholder" | has the meaning ascribed to it under the Listing Rules |
| "CPI" | the Consumer Price Index of the Zhejiang province, the PRC |
| "Director(s)" | the directors of the Company |
| "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 |
| "Hanghui Co" | Zhejiang Hanghui Expressway Co., Ltd., a 88.674% owned subsidiary of the Company |
| "Hong Kong" | the Hong Kong Special Administrative Region of the PRC |
| "HK$" | Hong Kong dollars, the lawful currency of Hong Kong |
| "Jiaxing Co" | Zhejiang Jiaxing Expressway Co., Ltd., a 99.9995% owned subsidiary of the Company |
| "Jinhua Co" | Zhejiang Jinhua Yongjin Expressway Co., Ltd., a 100% owned subsidiary of the Company |
| "Listing Rules" | Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. |
| "Maintenance Co" | (Zhejiang Expressway Maintenance Co., Ltd.*), a company incorporated in the PRC and an indirect wholly-owned subsidiary of Communications Group |
| "Maintenance Services" | day-to-day maintenance services including road patrol, inspection of the maintenance status of pavements, roadbeds, greening and sloping |
| "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 announcement, excludes Hong Kong, Macau and Taiwan) |
| "RMB" | Renminbi, the lawful currency of the PRC |
| "Road Maintenance Agreements" | A number of road maintenance agreements entered into between the Company (or the relevant subsidiaries of the Company) and Maintenance Co on 8 April 2016, pursuant to which Maintenance Co agreed to provide the Maintenance Services to the Target Expressways. |
| "Shangsan Co" | Zhejiang Shangsan Expressway Co., Ltd., a 73.625% owned subsidiary of the Company |
| "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 Expressways" | Jinhua section, Ningbo-Jinhua Expressway, the Hanghui Expressway, Shanghai-Hangzhou-Ningbo Expressway and the Shangsan Expressway |
| "%" | per cent. |
| * English names for reference only. | |
On behalf of the BoardZHEJIANG EXPRESSWAY CO., LTD.ZHAN XiaozhangChairman
Hangzhou, PRC, 8 April 2016
As of the date of this announcement, the executive directors of the Company are: Mr. ZHAN Xiaozhang, Mr. CHENG Tao and Ms. LUO Jianhu; the non-executive directors of the Company are: Mr. WANG Dongjie, Mr. DAI Benmeng and Mr. ZHOU Jianping; and the independent non-executive directors of the Company are: Mr. ZHOU Jun, Mr. PEI Ker-Wei and Ms. LEE Wai Tsang Rosa.