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 January 28, 2016 - 11:04 AM EST
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ZHEJIANG EXPRESSWAY CO LD - Completion of Major and Connected Transaction

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)

COMPLETION OF MAJOR AND CONNECTED TRANSACTION
IN RELATION TO
DISPOSAL OF 50% EQUITY INTEREST IN PETROLEUM CO
AND
CONTINUING CONNECTED TRANSACTIONS

COMPLETION OF THE DISPOSAL
Reference is made to the Company's announcement dated 12 October 2015. The Board is pleased to announce that all of the conditions precedent set out in the Share Purchase Agreement have been fulfilled and Completion took place on 4 January 2016. Upon Completion, the Company has ceased to hold any interest in Petroleum Co and Petroleum Co has ceased to be an associate of the Company.

CONTINUING CONNECTED TRANSACTIONS
The Board also announces that, on 28 January 2016, Development Co and Petroleum Co entered into (i) the Petroleum Supply Agreement in relation to the supply of petroleum to the Service Stations; and (ii) the Service Stations Management Agreement in relation to the day-to-day management of the Service Stations.

LISTING RULES IMPLICATIONS
After Completion, 50% of the equity interest in Petroleum Co is held by Zhejiang Communications Investment, which is a wholly-owned subsidiary of Communications Group, the controlling shareholder of the Company. Therefore, Petroleum Co is an associate of Zhejiang Communications Investment and a connected person of the Company, and the entering into of the Petroleum Supply Agreement and the Service Stations Management Agreement constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules.

As the relevant percentage ratios in respect of the Cap is over 0.1% but less than 5%, the entering into of the Petroleum Supply Agreement and the Service Stations Management Agreement is subject to the reporting and announcement requirements but exempt from the independent Shareholders' approval requirement under Chapter 14A of the Listing Rules.

Reference is made to the announcement of Zhejiang Expressway Co., Ltd. (the "Company") dated 12 October 2015 in relation to the disposal of 50% equity interest in Petroleum Co (the "Announcement"). Unless otherwise stated, terms used in this announcement have the same meanings as defined in the Announcement.

COMPLETION OF THE DISPOSAL
The Board is pleased to announce that all of the conditions precedent set out in the Share Purchase Agreement have been fulfilled and Completion took place on 4 January 2016. Upon Completion, the Company has ceased to hold any interest in Petroleum Co and Petroleum Co has ceased to be an associate of the Company.

CONTINUING CONNECTED TRANSACTIONS
As stated in the Announcement, Petroleum Co has been supplying petroleum to Development Co (a wholly-owned subsidiary of the Company), and has been providing management services to the Service Stations. After Completion, Petroleum Co has become a connected person of the Company by virtue of it being an associate of Zhejiang Communications Investment, which is a wholly-owned subsidiary of Communications Group, the controlling shareholder of the Company. Therefore, transactions between Petroleum Co and Development Co would become connected transactions for the Company under Chapter 14A of the Listing Rules.

It is the intention of the Company that the operation of the Service Stations will be contracted out to Petroleum Co, pursuant to which Petroleum Co will operate the Service Stations, be entitled to the revenue generated and bear the costs and expenses arising from its operation of the Service Stations. On the other hand, Development Co, being the owner of the Service Stations, will receive a fee on an annual basis to be determined based on the sales volume of the Service Stations.

As the proposed contracting out of the Service Stations to Petroleum Co requires the change of the business licence for the Service Stations in the PRC which is expected to take approximately two to three months after the date of Completion, on 28 January 2016, Development Co and Petroleum Co entered into the Petroleum Supply Agreement pursuant to which Petroleum Co agreed to supply petroleum to Development Co. In consideration of the purchase of petroleum by Development Co pursuant to the Petroleum Supply Agreement, on 28 January 2016, Development Co and Petroleum Co entered into the Service Stations Management Agreement pursuant to which Petroleum Co agreed to provide management services to the Service Stations.

It is anticipated that the Petroleum Supply Agreement and the Service Stations Management Agreement will be terminated and a new agreement will be entered into between Petroleum Co and Development Co in respect of the contracting out of the Service Stations to Petroleum Co. Further announcement will be made by the Company in accordance with the Listing Rules as and when appropriate.

Details of the Petroleum Supply Agreement and the Service Stations Management Agreement are set out below.

Petroleum Supply Agreement
Date: 28 January 2016
Parties: (1) Development Co; and
(2) Petroleum Co
Term: from 28 January 2016 to 30 April 2016, provided that the Cap is not exceeded during such period
Nature of transaction: Petroleum Co has agreed to supply petroleum to the Service Stations
Price and pricing basis:   The petroleum supplied by Petroleum Co will be charged at the prevailing market price with a discount of no less than RMB260 per ton. Payment for the petroleum supplied will be settled by Development Co within three Business Days of the supply of the petroleum.
Cap during the Term: RMB380,000,000
The cap is determined based on (i) the historical annual supply of petroleum by Petroleum Co to Development Co in the amounts of RMB1,781,179,000 and RMB1,931,466,000 for the year ended 31 December 2013 and 31 December 2014, respectively; (ii) the expected consumption of petroleum during the Term; and (iii) the expected price of petroleum during the Term.

   

Service Stations Management Agreement
Date: 28 January 2016
Parties: (1) Development Co; and
(2) Petroleum Co
Term: from 28 January 2016 to 30 April 2016, provided that the Cap is not exceeded during such period
Nature of transaction: Petroleum Co has agreed to provide day-to-day management services to the Service Stations, including the preparation of monthly management report in respect of the Service Stations, management and maintenance of the Service Stations
Price and pricing basis:   No fees are payable by Development Co for the management services to be provided by Petroleum Co under the Service Stations Management Agreement in consideration of Development Co agreeing to purchase petroleum from Petroleum Co pursuant to the Petroleum Supply Agreement
Cap during the Term: No cap is determined in respect of the transactions under the Service Stations Management Agreement as no fees are payable by Development Co for the management services to be provided by Petroleum Co
Deposit: A refundable deposit in the sum of RMB20,000,000 will be payable by Petroleum Co to Development Co as security for the provision of the management services by Petroleum Co in accordance with the Service Stations Management Agreement

REASONS FOR AND BENEFITS OF THE TRANSACTIONS
The Directors consider that, as Petroleum Co has been supplying petroleum to Development Co and providing management services to Development Co prior to Petroleum Co became a connected person of the Company, the entering into of the Petroleum Supply Agreement and the Service Stations Management Agreement will enable Development Co to continue purchasing petroleum and obtaining management services from Petroleum Co pending the change of the business licence for the Service Stations and the entering into of an agreement for the contracting out of the operation of the Service Stations to Petroleum Co.. The Directors also consider that the entering into of the Service Stations Management Agreement will enable the Company to outsource the management of the Service Stations to Petroleum Co, which reduces the operating costs of the Company.

Given the above, the Directors (including the independent non-executive Directors) are of the view that the terms of the Petroleum Supply Agreement and the Service Stations Management Agreement are on normal commercial terms and are fair and reasonable and in the interests of the Company and the Shareholders as a whole.

LISTING RULES IMPLICATIONS
After Completion, 50% of the equity interest in Petroleum Co is held by Zhejiang Communications Investment, which is a wholly-owned subsidiary of Communications Group, the controlling shareholder of the Company. Therefore, Petroleum Co is an associate of Zhejiang Communications Investment and a connected person of the Company, and the entering into of the Petroleum Supply Agreement and the Service Stations Management Agreement constitutes a connected transaction for the Company under Chapter 14A of the Listing Rules.

As the relevant percentage ratios in respect of the Cap is over 0.1% but less than 5%, the entering into of the Petroleum Supply Agreement and the Service Stations Management Agreement are subject to the reporting and announcement requirements but exempt from the independent Shareholders' approval requirement under Chapter 14A 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 resolutions with respect to the approval of the Petroleum Supply Agreement and the Service Stations Management Agreement. 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 Petroleum Supply Agreement and the Service Stations Management Agreement or is required to abstain from voting on the relevant Board resolutions to approve the same.

INFORMATION ON THE COMPANY
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.

INFORMATION ON THE PARTIES
Development Co is a company incorporated in the PRC on 28 May 2003 and a wholly-owned subsidiary of the Company, the principal business of which is the operation of service areas and roadside advertising along the expressways operated by the Group.

Petroleum Co is a company incorporated in the PRC jointly held by Zhejiang Communications Investment and Sinopec on a 50:50 basis. The business of Petroleum Co primarily consists of (i) storage and sale of petroleum and petroleum products; (ii) wholesale of gasoline, kerosene and diesel; and (iii) investing in, constructing and operating gas stations along the high grade roads.

DEFINITIONS
In this announcement, unless the context specifies otherwise, the following defined expressions have the following meanings:

"Cap" RMB380,000,000, being the maximum amount of petroleum that Petroleum Co may supply to Development Co during the Term
"Petroleum Co"      Zhejiang Expressway Petroleum Development Co., Ltd.*, a company incorporated in the PRC and is jointly  held  by Zhejiang Communications Investment and Sinopec on a 50:50 basis
"Petroleum Supply 
  Agreement"   
the  agreement  dated  28  January  2016 entered into between Development Co and Petroleum Co, pursuant to which Petroleum Co agreed to supply petroleum to the Service Stations
"Service Stations 
  Management Agreement"                        
the  agreement  dated  28  January  2016  entered  into between Development Co and Petroleum Co, pursuant to which Petroleum Co agreed to provide management services to the Service Stations
"Term"                                            a period from 28 January 2016 to 30 April  2016, provided that the Cap is not exceeded during such period
*    English names for reference only.

On behalf of the Board             
ZHEJIANG EXPRESSWAY CO., LTD.
ZHAN Xiaozhang             

Chairman                     

Hangzhou, PRC, 28 January 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.


Source: PR Newswire (January 28, 2016 - 11:04 AM EST)

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