31st Jan 2007 07:00
Datang Intl Power Generation Co Ld31 January 2007 If you are in any doubt as to any aspect of this circular or as to the action tobe taken, you should consult a licensed securities dealer, bank manager,solicitor, professional accountant or other professional adviser. If you have sold or transferred all your shares in DATANG INTERNATIONAL POWERGENERATION CO., LTD., you should at once hand this circular to the purchaser ortransferee or to the bank, licensed securities dealer or other agent throughwhom the sale or transfer was effected for transmission to the purchaser ortransferee. The Stock Exchange of Hong Kong Limited takes no responsibility for the contentsof this circular, makes no representation as to its accuracy or completeness andexpressly disclaims any liability whatsoever for any loss howsoever arising fromor in reliance upon the whole or any part of the contents of this circular. DATANG INTERNATIONAL POWER GENERATION CO., LTD. (a sino-foreign joint stock limited company incorporated in the People's Republic of China) (Stock Code: 991) DISCLOSEABLE AND CONNECTED TRANSACTION Independent Financial Adviser to the Independent Board Committee and the Independent Shareholders DBS A letter from the Board of the Company is set out on pages 4 to 10 of thiscircular. A letter from the Independent Board Committee is set out on pages 11to 12 of this circular. A letter from DBS Asia Capital Limited containing itsadvice to the Independent Board Committee and the Independent Shareholders isset out on pages 13 to 17 of this circular. 31 January 2007 CONTENTS PageDefinitions 1Letter from the Board 4Letter from the Independent Board Committee 11Letter from DBS Asia 13Appendix - General information 18 DEFINITIONS In this circular, unless the context otherwise requires, the followingexpressions have the following meanings:"A Share(s)" the domestic listed ordinary share(s) of the Company with a nominal value of RMB1.00 each "Associates" has the meaning ascribed to it under the Listing Rules "BEIG" Beijing Energy Investment (Group) Company Limited ("Chinese Words), a substantial Shareholder of the Company holding approximately 11.96% of the issued share capital of the Company "Board" board of Directors "CDGC" China Datang Corporation ("Chinese Words), a state-owned enterprise established under the laws of the PRC and a substantial Shareholder of the Company holding approximately 34.96% of the issued share capital of the Company "Company" Datang International Power Generation Co., Ltd. ("Chinese Words), a sino-foreign joint stock limited company incorporated in the PRC on 13 December 1994, of which the H Shares are listed on The Stock Exchange of Hong Kong Limited and The London Stock Exchange Limited and the A Shares are listed on the Shanghai Stock Exchange "connected person" has the meaning ascribed to it under the Listing Rules "DBS Asia" DBS Asia Capital Limited, the independent financial adviser to the Independent Board Committee and the Independent Shareholders in respect of the Investment Agreement, a licensed corporation for types 1 (dealing in securities), 4 (advising on securities) and 6 (advising on corporate finance) regulated activities under the SFO "Directors" directors of the Company "EGM" the extraordinary general meeting of the Company to be held to consider and, if thought fit, approve the Investment Agreement "Group" The Company and its subsidiaries "H Share(s)" the overseas listed foreign share(s) of the Company with a nominal value of RMB1.00 each and are listed on The Stock Exchange of Hong Kong Limited and The London Stock Exchange Limited "HK$" Hong Kong dollar(s), the lawful currency of Hong Kong "Hong Kong" the Hong Kong Special Administrative Region of the PRC "Independent board Committee" the independent board committee of the Company, comprising five independent non-executive Directors, namely Mr. Xie Songlin, Mr. Xu Daping, Mr. Liu Chaoan, Mr. Yu Changchun and Mr. Xia Qing "Independent Shareholders" Shareholders other than BEIG and CDGC and their Associates "Investment Agreement" the investment agreement in relation to jointly establish Tuoketuo No. 2 Power Co. for the purposes of planning, constructing and operating the Tuoketuo Power Plant Project, dated on 9 January 2007 entered into between the Company, BEIG, CDGC and MDHN "Latest Practicable Date" 26 January 2007, being the latest practicable date prior to the printing of this circular for ascertaining certain information contained in this circular "Listing Rules" Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited "MDHN" Inner Mongolia Mengdian Huaneng Thermal Power Corporation Limited, of which the shares are listed and traded on the Shanghai Stock Exchange "PRC" the People's Republic of China "RMB" Renminbi, the lawful currency of the PRC "SEPA" the State Environment Protection Administration "Shareholder(s)" the holder(s) of the share(s) of the Company "Tuoketuo No. 2 power Co." Inner Mongolia Datang International Tuoketuo No. 2 Power Generation Company Limited "Tuoketuo Power Company" Inner Mongolia Datang International Tuoketuo Power Generation Company Limited, a subsidiary of the Company, of which its 60% shares are held by the Company "Tuoketuo Power plant Project" the power plant project of Phases IV and V of Tuoketuo power plant with a capacity of 4 x 600MW "%" per cent. For the purpose of this circular, HK$1.00 is equivalent to RMB1.0028. DATANG INTERNATIONAL POWER GENERATION CO., LTD. (a sino-foreign joint stock limited company incorporated in the People's Republic of China) (Stock Code: 991)Executive Directors: Registered office:Mr. Zhang Yi No. 482 Guanganmennei AvenueMr. Yang Hongming Xuanwu District Beijing, 100053Non-executive Directors: PRCMr. Zhai Ruoyu (Chairman)Mr. Hu Shengmu Principal place of businessMr. Fang Qinghai in Hong Kong:Mr. Liu Haixia c/o Huen Wong & Co. in association withMs. Guan Tiangang Fried, Frank, Harris, Shriver & Jacobson LLPMr. Su Tiegang 1105-1108 Gloucester TowerMr. Ye Yonghui The LandmarkMr. Tong Yunshang 15 Queen's Road Central Hong KongIndependent non-executive Directors:Mr. Xie SonglinMr. Xu DapingMr. Liu ChaoanMr. Yu ChangchunMr. Xia Qing 31 January 2007 To the Shareholders Dear Sir or Madam, DISCLOSEABLE AND CONNECTED TRANSACTION INTRODUCTION The Board is pleased to announce that on 9 January 2007, the Company enteredinto the Investment Agreement with BEIG, CDGC and MDHN to establish Tuoketuo No.2 Power Co. for the purposes of planning, constructing and operating theTuoketuo Power Plant Project. The Company, BEIG, CDGC and MDHN agreed tocontribute to the establishment of Tuoketuo No. 2 Power Co. in the proportion of40%, 25%, 20% and 15%, respectively. According to the Listing Rules, as the assets and consideration ratios (asdefined in Rule 14.07 of the Listing Rules) is more than 5% but less than 25%,the Investment Agreement constitutes a discloseable transaction of the Companywhich is subject to the notification and publication requirements as set out inRules 14.34 to 14.39 of the Listing Rules. As at the date of the Investment Agreement, BEIG held approximately 11.86% ofthe issued share capital of the Company and 25% of the interest of TuoketuoPower Company, a subsidiary of the Company; CDGC held approximately 34.96% ofthe issued share capital of the Company and MDHN held 15% of the interest ofTuoketuo Power Company. Accordingly, each of BEIG, CDGC and MDHN is a connectedperson of the Company under the Listing Rules and therefore the InvestmentAgreement constitutes a connected transaction of the Company under the ListingRules. As the assets and consideration ratios (as defined in Rule 14.07 of theListing Rules) is more than 2.5%, the Investment Agreement is subject to thereporting, announcement and independent shareholders' approval requirementsunder Chapter 14A of the Listing Rules. The Company will also disclose therelevant details in the next published annual report and accounts of the Companyin accordance with the relevant requirements as set out in Rule 14A.45 of theListing Rules. The purpose of this circular is to provide you with further details of theInvestment Agreement, to set out the recommendation of the Independent BoardCommittee and to set out the letter of advice from DBS Asia to the IndependentBoard Committee and the Independent Shareholders in respect of the InvestmentAgreement. INVESTMENT AGREEMENT Date 9 January 2007 Parties1. The Company,2. BEIG,3. CDGC4. MDHN. Major terms of the Investment Agreement Pursuant to the Investment Agreement, the Company, BEIG, CDGC and MDHN agreed tocontribute in cash to the establishment of Tuoketuo No. 2 Power Co. in theproportion of 40%, 25%, 20% and 15%, respectively, for the purposes of planning,constructing and operating the Tuoketuo Power Plant Project. The total investment amount of the Tuoketuo Power Plant Project is approximatelyRMB10,193,530,000 (equivalent to approximately HK$10,165,067,810), subject tothe final approval by the relevant government authorities in the PRC. The finalregistered capital of Tuoketuo No. 2 Power Co. will account for approximately20% of the total investment amount of the project, i.e. approximatelyRMB2,038,710,000 (equivalent to approximately HK$2,033,017,551). Pursuant to the Investment Agreement, the Company, BEIG, CDGC and MDHN will beresponsible for contributing in cash in the proportion of 40% (i.e.approximately RMB815,484,000, equivalent to approximately HK$813,207,020), 25%(i.e. approximately RMB509,677,500, equivalent to approximately HK$508,254,388),20% (i.e. approximately RMB407,742,000, equivalent to approximatelyHK$406,603,510) and 15% (i.e. approximately RMB305,806,500, equivalent toapproximately HK$304,952,633), respectively, to the registered capital ofTuoketuo No. 2 Power Co.. There is no time limit specified in the InvestmentAgreement within which the parties shall contribute in full to the registeredcapital of Tuoketuo No. 2 Power Co. and it is expected that the parties to theInvestment Agreement will contribute their respective shares to the registeredcapital of Tuoketuo No. 2 Power Co. in stages in line with the constructionprogress of the Tuoketuo Power Plant Project. As at the date of this circular, the parties to the Investment Agreement havenot contributed any registered capital to Tuoketuo No. 2 Power Co. The Company'scontribution to the registered capital of Tuoketuo No. 2 Power Co. will befunded by internal resources. Pursuant to the Investment Agreement, all funds required for the construction ofthe Tuoketuo Power Plant Project will be funded by the registered capital ofTuoketuo No. 2 Power Co. and financing resources in the PRC, i.e. loans frombanks. If necessary, the respective parties to the Investment Agreement willseverally guarantee against such financing in proportion to their respectivecapital contributions in Tuoketuo No. 2 Power Co. and Tuoketuo No. 2 Power Co.will provide counter-guarantee with its assets or other applicable means againstthe guarantees given by the respective parties to the Investment Agreement. Inthe event of any further capital injection or other guarantees againstborrowings required upon the Company, the Company will comply with the relevantrequirements under the Listing Rules if and when necessary. Effective date of the Investment Agreement The Investment Agreement will become effective when the respective parties tothe Investment Agreement have respectively obtained approvals from theirauthorities for the investment items in the Investment Agreement. As at the dateof this circular, the Company still has to submit the Investment Agreement toits general meeting for consideration and approval. Other major terms of the Investment Agreement The term of operation of Tuoketuo No. 2 Power Co. shall be 30 years from thedate of issuance of the business licence. In order to enable the Company to obtain over 50% of the voting rights in thegeneral meetings and board meetings of Tuoketuo No. 2 Power Co. upon itsestablishment, CDGC and the Company entered into a separate agreement andpursuant to which, CDGC agreed that while exercising the voting rights on thegeneral meetings and board meetings of Tuoketuo No. 2 Power Co., CDGC will votein line with the Company. As a result, Tuoketuo No. 2 Power Co. will become asubsidiary of the Company and the results of Tuoketuo No. 2 Power Co. will beconsolidated into the Group's financial statements. Upon obtaining the approval from the relevant government authorities regardingthe Tuoketuo Power Plant Project, the Tuoketuo Power Plant Project willcommence, including the construction of plant, the purchase and the installationof facilities. The Company is not in a position to ascertain the time when suchgovernment approval will be issued. The Company estimates that the powergenerating units to be built by the Tuoketuo No. 2 Power Co will commencecommercial operation in stages within 24 months from the commencement ofconstruction of the Tuoketuo Power Plant Project. Regarding the recent orders given to the Company by SEPA on environmentalprotection issues, the Company considers that there will be no immediate impacton the Tuoketuo Power Plant Project since part of the project has already beenapproved by SEPA, while the remaining part is still in the initial preparationstage. Further, the Company will actively coordinate with various parties andimplement environmental protection measures, so as to meet the requirements ofSEPA as soon as practicable. REASONS FOR AND BENEFITS OF ENTERING INTO THE INVESTMENT AGREEMENT The Tuoketuo Power Plant Project is located in a place with abundant coalresources. As such, fuel supplies with relatively low costs for the project canbe guaranteed which will help lower the operation costs of the Tuoketuo PowerPlant Project. Upon completion, the project will supply electricity directly tothe North China Power Grid. Beijing-Tianjian-Tangshan ("BTT") area, which iswithin the North China Power Grid, is the load centre for electricityconsumption with fast economic growth. The Company considers that the Tuoketuo Power Plant Project, upon itscompletion, will benefit from the growing demand for electricity in the BTTarea, which in turn will enhance the Company's profitability as a whole. TheDirectors consider that the entering into the Investment Agreement willfacilitate the profit growth of the Company. The Directors consider that the terms of the Investment Agreement werenegotiated on an arm's length basis between the Company and the partiesthereto and were determined on normal commercial terms. The Directors considerthat the terms of Investment Agreement are fair and reasonable and in the bestinterest of the Company and the Shareholders as a whole. INFORMATION RELATING TO TUOKETUO NO. 2 POWER CO. Pursuant to the Investment Agreement, Tuoketuo No. 2 Power Co., upon itsestablishment, will plan, construct and operate the Tuoketuo Power Plant Projectwhich comprises four 600MW air-cooling coal-fired power generating units.Located in Hohhot City, Inner Mongolia Autonomous Region, the PRC, all theelectricity generated by the power plant will be transmitted to the North ChinaPower Grid. INFORMATION RELATING TO THE GROUP The Group is principally engaged in the development and operation of powerplants, the sale of electricity and thermal power, and the repair, testing andmaintenance of power equipment and power related technical services, with itsmain service areas in the PRC. INFORMATION RELATING TO BEIG BEIG is a wholly state-owned company which is allowed to engage in any businessactivities within the scope of operation as permitted by the laws andregulations. BEIG is principally engaged in the development and investment ofvarious forms of energy. INFORMATION RELATING TO CDGC CDGC is a state-owned enterprise; its main scope of operations are thedevelopment, investment, construction, operation and management of power energy,organisation of power (thermal) production and sales, power technologydevelopment and consultation, and so forth. INFORMATION RELATING TO MDHN MDHN is a joint stock limited company and its scopes of operation are coal-firedpower generation and supply of thermal power. DISCLOSEABLE AND CONNECTED TRANSACTIONS According to the Listing Rules, as the assets and consideration ratios (asdefined in Rule 14.07 of the Listing Rules) is more than 5% but less than 25%, the InvestmentAgreement constitutes a discloseable transaction of the Company which is subjectto the notification and publication requirements as set out in Rules 14.34 to14.39 of the Listing Rules. As at the date of the Investment Agreement, BEIG held approximately 11.86% ofthe issued share capital of the Company and 25% of the interest of TuoketuoPower Company, a subsidiary of the Company; CDGC held approximately 34.96% ofthe issued share capital of the Company and MDHN held 15% of the interest ofTuoketuo Power Company. Accordingly, each of BEIG, CDGC and MDHN is a connectedperson of the Company under the Listing Rules and therefore the InvestmentAgreement constitutes a connected transaction of the Company under the ListingRules. As the assets and consideration ratios (as defined in Rule 14.07 of theListing Rules) is more than 2.5%, the Investment Agreement is subject to thereporting, announcement and Independent Shareholders' approval requirementsunder Chapter 14A of the Listing Rules. The Company will also disclose therelevant details in the next published annual report and accounts of the Companyin accordance with the relevant requirements as set out in Rule 14A.45 of theListing Rules. EGM The Company will convene the EGM to, among other things, consider and approvethe Investment Agreement and the transaction contemplated thereunder. A noticeconvening the EGM will be announced separately and despatched to theShareholders as soon as reasonably practicable. Shareholders having material interests in the transaction and their respectiveAssociates will abstain from voting. Therefore, each of BEIG and CDGC and theirrespective Associates will abstain from voting at the EGM in accordance with theListing Rules and that the voting will be taken by way of a poll. POLL PROCEDURE Pursuant to the Articles of Association, a general voting shall be made at theShareholders' meeting by a show of hands. However, the following personsshall have the right to request for a voting by poll before or after a voting byshow of hands: (A) the chairman of the meeting; or (B) at least two Shareholders present in person or by proxy entitled to vote at the meeting; or (C) one or more Shareholders present in person or by proxy representing 10% or more of the total voting rights of all the Shareholders. A person who has made a request for voting by poll can withdraw such demand. Pursuant to Rule 14A.52 of the Listing Rules, the vote taken at the EGM must betaken by poll. The Company will announce the results of the poll on the nextbusiness day following the EGM. RECOMMENDATION Your attention is drawn to the letter from the Independent Board Committee asset out on pages 11 to 12 of this circular which contains its recommendation tothe Independent Shareholders on the terms of the Investment Agreement. Yourattention is also drawn to the letter of advice received from DBS Asia, theindependent financial adviser to the Independent Board Committee and theIndependent Shareholders as set out on pages 13 to 17 of this circular whichcontains, among others, its advice to the Independent Board Committee and theIndependent Shareholders in relation to the terms of the Investment Agreement,the casting of votes for or against the resolution approving the InvestmentAgreement by poll at the EGM as well as the principal factors and reasonsconsidered by it in concluding its advice. ADDITIONAL INFORMATION No gain or loss by the Company will arise and there will be no material impacton the assets and liabilities of the Company as a result of the establishment ofTuoketuo No. 2 Power Co. when the Investment Agreement becomes effective. Upon the establishment of Tuoketuo No. 2 Power Co., it will become a subsidiaryof the Company. The results of Tuoketuo No. 2 Power Co. will be consolidatedinto the results of the Company and the assets and liabilities of Tuoketuo No. 2Power Co. will be included in the consolidated accounts of the Company. Your attention is also drawn to the general information as set out in theappendix of this circular. Yours faithfully, By Order of the Board of DATANG INTERNATIONAL POWER GENERATION CO., LTD. Yang Hongming Company Secretary DATANG INTERNATIONAL POWER GENERATION CO., LTD. (a sino-foreign joint stock limited company incorporated in the People's Republic of China) (Stock Code: 991) Legal address and head office No.482 Guanganmennei Avenue Xuanwu District Beijing, 100053 The PRC 31 January 2007 To the Independent Shareholders Dear Sir or Madam, DISCLOSEABLE AND CONNECTED TRANSACTION We refer to the circular issued by the Company to the Shareholders dated 31January 2007 (the "Circular") of which this letter forms part. Terms definedin this Circular shall have the same meanings in this letter unless the contextotherwise requires. Under the Listing Rules, the transaction contemplated under the InvestmentAgreement and the entering into the Investment Agreement constitutes adiscloseable and connected transaction for the Company and is subject to theapproval of the Independent Shareholders at the EGM. We have been appointed as the Independent Board Committee to consider the termsof the Investment Agreement and to advise the Independent Shareholders inconnection with the Investment Agreement as to whether, in our opinion, theirterms are fair and reasonable so far as the Independent Shareholders areconcerned and whether the Investment Agreement is in the interests of theCompany and the Shareholders as a whole. DBS Asia has been appointed as theindependent financial adviser to advise us in this respect. We wish to draw your attention to the letter from the Board and the letter fromDBS Asia as set out in this circular. Having considered the principal factorsand reasons considered by, and the advice of, DBS Asia as set out in its letterof advice, we consider that the Investment Agreement is on normal commercialterms, and that the Investment Agreement is in the best interests of the Companyand the Shareholders as a whole. We also consider that the terms of the Investment Agreement are fair andreasonable so far as the Independent Shareholders are concerned. Accordingly, werecommend the Independent Shareholders to vote in favour of the ordinaryresolution to approve the Investment Agreement in the EGM. Yours faithfully, For and on behalf of the Independent Board Committee Xie Songlin, Xu Daping, Liu Chaoan, Yu Changchun Xia Qing Independent non-executive Directors The following is the text of the letter of advice from DBS Asia, the independentfinancial adviser to the Independent Board Committee and IndependentShareholders, in relation to the discloseable and connected transactions, whichhas been prepared for the purpose of inclusion in this circular DBS 31 January 2007 To the Independent Board Committee and Independent Shareholders of DatangInternational Power Generation Co., Ltd. Dear Sirs, DISCLOSEABLE AND CONNECTED TRANSACTIONINVESTMENT AGREEMENTRELATING TO THE ESTABLISHMENT OF THE TUOKETUO NO.2 POWER CO. INTRODUCTION We refer to our engagement as the independent financial adviser to theIndependent Board Committee and Independent Shareholders in relation to theInvestment Agreement, details of which are set out in the letter from the Boardas set out in the circular (the "Circular") to the Shareholders dated 31January 2007, of which this letter forms part. Expressions used in this lettershall have the same meaning as defined in the Circular. As at the date of the Investment Agreement, BEIG held approximately 11.86% ofthe issued share capital of the Company and 25% of the interest of TuoketuoPower Company, a subsidiary of the Company; CDGC held approximately 34.96% ofthe issued share capital of the Company and MDHN held 15% of the interest ofTuoketuo Power Company. Accordingly, each of BEIG, CDGC and MDHN is a connectedperson of the Company under the Listing Rules and the entering into of theInvestment Agreement constitutes a connected transaction of the Company underthe Listing Rules. Our scope of work under this engagement is to assess the fairness andreasonableness of the terms of the Investment Agreement insofar as theIndependent Shareholders are concerned and whether from this perspective theInvestment Agreement is in the interest of the Company and its Shareholders as awhole. It is not within our scope of work to opine on any other aspects of theInvestment Agreement. In addition, it is not within our terms of reference tocomment on the commercial merits of the Investment Agreement which is theresponsibility of the Directors. In arriving at our opinion, we have relied on the information, opinions andfacts supplied, and representations made to us, by the Directors, and advisersand representatives of the Company (including those contained or referred to inthe Circular). We have also assumed that the information and representationscontained or referred to in the Circular were true and accurate in all materialrespects at the time they were made and continue to be so at the date of thedespatch of the Circular. We have no reason to doubt the truth, accuracy andcompleteness of the information and representations provided to us by theDirectors. We have also relied on certain information available to the publicand have assumed such information to be accurate and reliable, and we have notindependently verified the accuracy of such information. We have been advisedby the Directors and believe that no material facts have been omitted from theCircular. We consider that we have reviewed sufficient information to reach an informedview, to justify reliance on the accuracy of the information contained in theCircular and to provide a reasonable basis for our opinion. We have not,however, conducted an independent verification of the information nor have weconducted any form of in-depth investigation into the businesses and affairs orthe prospects of the Company or any of its respective subsidiaries orassociates. PRINCIPAL FACTORS CONSIDERED In arriving at our opinion with regard to the terms of the Investment Agreement,we have considered the principal factors set out below: 1. BACKGROUND OF THE PARTIES TO THE INVESTMENT AGREEMENT The parties to the Investment Agreement are the Company, BEIG, CDGC and MDHN. The Company is principally engaged in the development and operations of powerplants, the sale of electricity and thermal power, and the repair, testing andmaintenance of power equipment and power related technical services, with itsmain operation in the PRC. BEIG is a PRC state-owned enterprise which is principally engaged in thedevelopment and investment of various forms of energy. CDGC is a PRC state-ownedenterprise which is principally engaged in the development, investment,construction, operation and management of power energy, organisation of power(thermal) production and sales, power technology development and consultation.Both BEIG and CDGC are substantial shareholders of the Company. MDHN is a jointstock limited company established in the PRC and listed on the Shanghai StockExchange. Its principal business is coal-fired power generation and supply ofthermal power. 2. REASONS FOR AND BENEFITS OF ENTERING INTO THE INVESTMENT AGREEMENT Pursuant to the Investment Agreement, Tuoketuo No. 2 Power Co., upon itsestablishment, will plan, construct and operate the Tuoketuo Power Plant Projectwhich comprises four 600MW air-cooling coal-fired power generating units. Giventhat the principal business of the Company is the development and operations ofpower plants, and the sale of electricity and thermal power, we consider thatthe entering into of the Investment Agreement is within the normal and ordinarycourse of business of the Company. Located in Hohhot City, Inner Mongolia Autonomous Region, the PRC, it is plannedthat all the electricity generated by the Tuoketuo Power Plant Project will betransmitted to the North China Power Grid. Beijing-Tianjian-Tangshan ("BTT")area, which is within the North China Power Grid, is the load centre forelectricity consumption with fast economic growth. According to the ChinaPopulation Information and Research Centre website, the growth in gross domesticproduct ("GDP") of Beijing, Tianjin and Hebei (the province where Tangshan islocated) in 2005 were approximately 11.1%, 14.5% and 13.4%, respectively. TheCompany considers that the Tuoketuo Power Plant Project, upon its completion,will benefit from the growing demand for electricity in the BTT area, which inturn might enhance the Company's profitability as a whole. As advised by themanagement of the Company, one of the power plants of the Company in the regionhas already been operating at near full capacity. The Directors consider thatthe entering into the Investment Agreement will enable the Group to furthercapture the demand for electricity in the region. We also note that the TuoketuoPower Plant Project is located near Junger coalfield, which has abundant coalresources, and is one of the largest open-air coal mine in the PRC with anestimated reserve of 26.8 billion tonnes. Accordingly, the management of theCompany consider that the fuel supplies with relatively low costs for theproject are readily available which will help to lower the operation costs ofthe Tuoketuo Power Plant Project. In addition, as advised by the Directors, the Tuoketuo Power Plant Project isstructured as a joint venture project which is expected to enable the Company tospread its risks associated with the project and to enable the Company todiversify its resources into other viable projects. 3. MAJOR TERMS OF THE INVESTMENT AGREEMENT Pursuant to the Investment Agreement, the Company, BEIG, CDGC and MDHN agreed tocontribute in cash for the establishment of Tuoketuo No. 2 Power Co. in theproportion of 40%, 25%, 20% and 15%, respectively, for the purposes of planning,constructing and operating the Tuoketuo Power Plant Project. The total investment amount of the Tuoketuo Power Plant Project is approximatelyRMB10,193,530,000 (equivalent to approximately HK$10,165,067,810), subject tothe final approval by the relevant government authorities in the PRC. The finalregistered capital of Tuoketuo No. 2 Power Co. will account for approximately20% of the total investment amount of the project, i.e. approximatelyRMB2,038,710,000 (equivalent to approximately HK$2,033,017,551). Based on the Investment Agreement, the Company, BEIG, CDGC and MDHN will beresponsible for contributing in cash in the proportion of 40% (i.e.approximately RMB815,484,000, equivalent to approximately HK$813,207,020), 25%(i.e. approximately RMB509,677,500, equivalent to approximately HK$508,254,388),20% (i.e. approximately RMB407,742,000, equivalent to approximatelyHK$406,603,510) and 15% (i.e. approximately RMB305,806,500, equivalent toapproximately HK$304,952,633), respectively, to the registered capital ofTuoketuo No. 2 Power Co.. There is no time limit specified in the InvestmentAgreement within which the parties shall contribute in full to the registeredcapital of Tuoketuo No. 2 Power Co. and it is expected that the parties to theInvestment Agreement will contribute their respective shares to the registeredcapital of Tuoketuo No. 2 Power Co. in stages in line with the constructionprogress of the Tuoketuo Power Plant Project. Such contribution of capital bystages is common among power plant projects of substantial size and will bebeneficial to the cashflow position of the joint venture partners. Pursuant to the Investment Agreement, all funds required for the construction ofthe Tuoketuo Power Plant Project will be funded by the registered capital ofTuoketuo No. 2 Power Co. and financing resources in the PRC, i.e. loans frombanks. If necessary, the respective parties to the Investment Agreement willseverally guarantee against such financing in proportion to their respectivecapital contributions in Tuoketuo No. 2 Power Co. and Tuoketuo No. 2 Power Co.will provide counter-guarantee with its assets or other applicable means againstthe guarantees given by the respective parties to the Investment Agreement. In order to enable the Company to obtain over 50% of the voting rights in thegeneral meetings and board meetings of Tuoketuo No. 2 Power Co. upon itsestablishment, CDGC and the Company have entered into a separate agreement andpursuant to which, CDGC agreed that while exercising the voting rights on thegeneral meetings and board meetings of Tuoketuo No. 2 Power Co., CDGC will votein line with the Company. As a result, Tuoketuo No. 2 Power Co. will become asubsidiary of the Company under accounting treatment and the results of TuoketuoNo. 2 Power Co. will be consolidated into the Group's financial statements. The Directors consider that the terms of the Investment Agreement werenegotiated on an arm's length basis between the Company and the partiesthereto and were determined on normal commercial terms. The Directors considerthat the terms of the Investment Agreement are fair and reasonable given thatthe Company, BEIG, CDGC and MDHN each proportionally share their respective cashcontribution to the registered capital and they will severally guarantee thethird party borrowings in proportion to their respective capital contributionsin Tuoketuo No. 2 Power Co. if so required. As the terms of the InvestmentAgreement stipulated that the joint venture partners contribute proportionallyto their respective share of registered capital and, where necessary, provideguarantees for loan financing based on their respective proportional interestsin the project, we are of the view that the terms of the Investment Agreementare fair and reasonable as far as the interests of the Independent Shareholdersare concerned. 4. WORKING CAPITAL The Company's capital contribution to the registered capital of Tuoketuo No.2 Power Co. will be funded by internal resources. We were advised by the Company that in the event of any further capitalinjection or other guarantees against borrowings are required by the Company,the Company will comply with the relevant requirements under the Listing Rulesif and when necessary. We have discussed with the Directors the impact of the capital contributionpursuant to the Investment Agreement on the working capital position of theCompany and have reviewed the financial statements of the Company for the sixmonths ended 30 June 2006. We understand that the Company has conducted detailedfeasibility and cashflow studies on the Company's participation in theTuoketuo No. 2 Power Plant Project. We are satisfied that the Company hassufficient working capital for financing its obligations pursuant to theInvestment Agreement. OPINION Having considered the principal factors discussed above, we are of the opinionthat the terms of the Investment Agreement is fair and reasonable so far as theinterests of Independent Shareholders are concerned and from this perspectivethe Investment Agreement is in the interests of the Company and the Shareholdersas a whole. Accordingly, we recommend the Independent Shareholders to vote infavour of the ordinary resolution to be proposed at the EGM to approve theInvestment Agreement. Yours faithfully, For and on behalf of DBS ASIA CAPITAL LIMITED Kelvin S. K. Lau Managing Director APPENDIX GENERAL INFORMATION 1. RESPONSIBILITY STATEMENT This circular includes particulars given in compliance with the Listing Rulesfor the purpose of giving information with regard to the Company. The Directorscollectively and individually accept full responsibility for the accuracy of theinformation contained in this circular and confirm, having made all reasonableenquiries that to the best of their knowledge and belief, there are no otherfacts the omission of which would make any statement in this circularmisleading. 2. DISCLOSURE OF INTERESTS Directors, supervisors and chief executive of the Company (i) As at Latest Practicable Date, none of theDirectors, supervisors and chief executive of the Company have any interests andshort positions in the shares, underlying shares and/or debentures (as the casemay be) of the Company or any of its associated corporations (within the meaningof the SFO) which was required to be notified to the Company and the StockExchange pursuant to Divisions 7 and 8 of Part XV of the SFO (including interestand short position which any such Director, chief executive or supervisor istaken or deemed to have under such provisions of the SFO) or which was requiredto be entered into the register required to be kept by the Company under section352 of the SFO or which was otherwise required to be notified to the Company andthe Stock Exchange pursuant to the Model Code for Securities Transactions byDirectors of Listed Issuers in the Listing Rules. (ii) As at the Latest Practicable Date, none of theDirectors, proposed Directors, supervisors or proposed supervisors of theCompany has any direct or indirect interest in any assets which have since 31December 2005 (being the date to which the latest published audited financialstatements of the Company were made up) been acquired or disposed of by orleased to any member of the Group, or are proposed to be acquired or disposed ofby or leased to any member of the Group. Substantial shareholders of the Company As at Latest Practicable Date, so far as the Directors, supervisors and chiefexecutive are aware, each of the following persons, not being a Director, chiefexecutive or supervisor of the Company, had an interest in the Shares whichfalls to be disclosed to the Company and the Stock Exchange under the provisionsof Division 2 and 3 of Part XV of the SFO: Percentage Number of to total Percentage to Percentage issued issued share total issued to total Class of ordinary capital of the domestic issued HName Shares shares held Company shares sharesChina Datang Domestic 1,979,620,580(L) 34.96% 46.78% -Corporation Shares (Note 1)Beijing Energy Domestic 671,792,400 (L) 11.86% 15.87% -Investment Shares(Group)Company(Note 2)Hebei Domestic 671,792,400 (L) 11.86% 15.87% -Construction SharesInvestmentCompany(Note 3)Tianhin Jinneng Domestic 606,006,300 (L) 10.70% 14.32% -Investment SharesCompany(Note 4)J.P. Morgan H Shares 155,888,845 (L) 2.75% - 10.90%(L)Chase & Co. 124,317,000 (P) 2.19% 8.69%(P)Templeton Asset H Shares 99,698,320 (L) 1.76% - 6.97%(L)ManagementLimitedAllianz SE H Shares 100,308,000(L) 1.77% - 7.01%(L) 142,000(S) 0 % 0.01%(S)UBS AG H Shares 92,316,088 (L) 1.63% - 6.45%(L) 17,568,000(S) 0.31% 1.23%(S)Halbis Capital H Shares 85,176,000(L) 1.50% - 5.95%Management(Hong Kong)Limited (L) means long position (S) means short position (P) means lending pool Notes: 1. Each of Mr. Zhai Rouyu, Mr. Hu Shengmu and Mr. Fang Qinghai, allnon-executive Director, is an employee of China Datang Corporation. 2. Each of Mr. Liu Haixia and Ms. Guan Tiangang, both non-executiveDirector, is an employee of Beijing Energy Investment (Group) Company. 3. Each of Mr. Su Tiegang and Mr. Ye Yonghui, both non-executiveDirector, is an employee of Hebei Construction Investment Company. 4. Mr. Tong Yunshang, a non-executive Director, is an employee ofTianjin Jinneng Investment Company. Save as disclosed above and so far as the Directors, supervisors and chiefexecutive are aware, as at the Latest Practicable Date, no other person had aninterest or short position in the Company's shares or underlying shares (asthe case may be) which would fall to be disclosed to the Company and the StockExchange under the provisions of Divisions 2 and 3 of Part XV of the SFO. Substantial Shareholders in other members of the Group Percentage shareholding of Shareholders holding 10% or more shareholders in otherOther members of the Group in other members of the Group members of the GroupInner Mongolia Datang Beijing Power Investment (Group) 25%International Company LimitedTuoketuo Power Generation Company Limited Inner Mongolia Mengdian 15% Huaneng Thermal Power Company Limited Tianjin Datang International Tianjin Jinneng Investment Company 25%Panshan Power Generation Company Limited Shanxi Datang Shentou Power Tianjin Jinneng Investment Company 40%Generation Company Limited Shanxi Datang International Shanxi Jinneng Hezhong Investment 20%Yungang Thermal Power and Guarantee Company LimitedCompany Limited Yunnan Datang International Yunnan Development and Investment 15%Honghe Power Generation Company LimitedCompany Limited Yunnan Xiaolongtan Mining Bureau 10% Gansu Datang Liancheng Power State Power Development 25%Generation Company Limited Company Limited Gansu Power Construction and 20% Investment Company Limited Hebei Datang International Tangshan Construction Investment 20%Tangshan Thermal Power CompanyCompany Limited Yunnan Datang Nalan Honghezhou Development and 20%Hydropower Investment Company LimitedDevelopment Company Jinping Power Company Limited 15% Beijing Huake Power Engineering 14% and Technology Company Limited Yunnan Datang International Beijing State Power Anrong Power 25%Lixianjiang Hydropower Investment Company LimitedDevelopment Company Limited Shanxi Datang International Shanxi Huafu Power Investment 20%Yuncheng Power Generation Company LimitedCompany Limited Jiangsu Datang International Nantong Zhonghe Holding 10%Lusigang Power Generation Company LimitedCompany Limited Guangdong Datang International Beijing China Power Huaze 12%Chaozhou Power Generation Investment Company LimitedCompany Limited Fujian Datang International Ningde Fujian Hesheng Group Company 25%Power Generation Company LimitedLimited Mindong Power Investment 10% Company Limited Shanxi Huafu Power Investment 10% Dompany Limited Chongqing Datang International Chongqing Hangyun Construction 24.5%Wulong Hydropower Development Development Company LimitedCompany Limited Chongqing Dingtai Power (Group) 24.5% Company Limited Yunnan Datang International Yunnan Wenshan Power Company 25%Wenshan LimitedHydropower Development Company Limited State Power Kunming Survey and 15% Design Research Institute Hebei Datang International Hebei Construction Investment 30%Wangtan Power Co., Ltd. Company Chongqing Datang Chongqing City Construction 30%International Shizhu Power Investment CompanyGeneration Company Limited. Inner Mongolia Datang Duolun Province Hyropower 41%International Duolun Generation Company LimitedHyropower Multiple Development CompanyLimited. Sichuan Datang International Gan Zi Province Gan Bao 20%Gan Zi Hydropower Hydropower GenerationGeneration Development Development Company LimitedCompany Limited Save as disclosed above, as at the Latest Practicable Date, there was no otherperson (other than a Director, supervisor or chief executive of the Company or amember of the Group), who had an interest or short position in the Shares orunderlying Shares which would fall to be disclosed to the Company under theprovisions of Divisions 2 and 3 of Part XV of the SFO, or who was, directly orindirectly, interested in 10% or more of the nominal value of any class of sharecapital carrying rights to vote in all circumstances at general meetings of anyother member of the Group. 3. SERVICE AGREEMENTS As at the Latest Practicable Date, none of the Directors, proposed directors,supervisors or proposed supervisors of the Company had any existing or proposedservice contract with any member of the Group (excluding contracts expiring ordeterminable by the Company within one year without payment of compensation(other than statutory compensation). 4. INTEREST IN CONTRACT As at the Latest Practicable Date, none of the Directors or supervisors of theCompany was materially interested in any contract or arrangement entered into byany member of the Group since 31 December 2005, being the date to which thelatest published audited financial statements of the Company were made up, andwhich was significant in relation to the business of the Group. 5. MATERIAL CHANGES The Directors, supervisors and chief executive are not aware of any materialadverse change in the financial or trading position of the Group since 31December 2005, being the date to which the latest published audited financialstatements of the Group were made up. 6. COMPETING INTEREST As at the Latest Practicable Date, none of the directors, supervisors and chiefexecutive of the Company and its subsidiaries, or their respective Associateshas interests in the businesses which compete or are likely to compete, eitherdirectly or indirectly, with the businesses of the Company and its subsidiaries. 7. EXPERT (a) The following sets out the qualifications of the expert which has givenits opinion or advice as contained in this circular: Name Qualifications DBS Asia Capital Limited Deemed licensed corporation to engage in types 1 (dealing in securities), 4 (advising on securities) and 6 (advising on corporate finance) regulated activities under the SFO (b) As at 25 January 2007, the holding company of DBS Asia and itssubsidiaries (collectively the "DBS Group") held, directly or indirectly, inaggregate 952,000 shares of the Company, representing approximately 0.017% ofthe issued share capital of the Company. Save as disclosed above, DBS Asia didnot have any shareholding, direct or indirect, in any member of the Group or anyright (whether legally enforceable or not) to subscribe for or to nominatepersons to subscribe for securities in any member of the Group on 25 January2007. (c) DBS Asia does not have any interest, direct or indirect, in any assetswhich have been acquired or disposed of by or leased to any member of the Group,or which are proposed to be acquired or disposed of by or leased to any memberof the Group since 31 December 2005, the date to which the latest publishedaudited financial statements of the Company were made up. (d) DBS Asia has given and has not withdrawn its written consent to the issueof this circular with the inclusion of its letter and references to its name inthe form and context in which they are included. (e) The letter and recommendation given by DBS Asia are given as of the dateof this circular for incorporation herein. 8 . LITIGATION No member of the Company and its subsidiaries is at present engaged in anylitigation or arbitration of material importance to the Company and itssubsidiaries and no litigation or claim of material importance to the Companyand its subsidiaries is known to the Directors, supervisors, chief executive andthe Company to be pending or threatened by or against any member of the Companyand its subsidiaries. 9. DOCUMENTS AVAILABLE FOR INSPECTION A copy of the Investment Agreement and the agreement dated 6 September 2006entered between the Company and CDGC is available for inspection at theprincipal place of business in Hong Kong of the Company at Rooms 1105-1108,Gloucester Tower, The Landmark, 15 Queen's Road Central, Hong Kong duringnormal business hours from the date of this circular up to and including 14February 2007: 10. MISCELLANEOUS (a) The English text of this circular shall prevail over the Chinese text. (b) The registered and head office of the Company is situated at No. 482,Guanganmennei Avenue, Xuanwu District, Beijing, the PRC. (c) The place of business of the Company in Hong Kong is at c/o Huen Wong &Co. in association with Fried, Frank, Harris, Shriver & Jacobson LLP 1105-1108Gloucester Tower, The Landmark,15 Queen's Road Central, Hong Kong. (d) The Hong Kong share registrar and transfer office of the Company isComputershare Hong Kong Investor Services Limited at 46/F, Hopewell Centre, 183Queen's Road East, Wanchai, Hong Kong. (e) The secretary of the Company is Mr. Yang Hongming, who is a senioreconomist and had graduated from North China Power College. (f) The Company has been using its best endeavour in finding a suitablecandidate to assume the position of qualified accountant, as required under Rule3.24 of the Listing Rules (the "Rule"), since the effective date of the Rule.Due to the practical difficulties in finding a candidate who has relevantexperience in the power industry, the Company has yet to appoint a qualifiedaccountant as required under the Rule and the Company will continue to use itsbest endeavour in finding a suitable candidate to assume such position as soonas practicable. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Datang Intl H