26th Apr 2006 07:43
The Stock Exchange of Hong Kong Limited takes no responsibility for thecontents of this announcement, makes no representation as to its accuracy orcompleteness and expressly disclaims any liability whatsoever for any losshowsoever arising from or in reliance upon the whole or any part of thecontents 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) DISCLOSEABLE TRANSACTION The Directors announce that, on 20th April, 2006, Shangsan Co, a subsidiary of the Company, entered into the Agreements to acquire in aggregate a 70.46% equity interest in Kinghing Securities. As consideration for each of the Acquisitions, Shangsan Co will participate in the Restructuring of Kinghing Securities, which will involve, among other things, Shangsan Co injecting in aggregate RMB600 million new capital into Kinghing Securities for itself and on behalf of certain holders of equity interests in Kinghing Securities in proportion to their respective interests inKinghing Securities, in several instalments by 30th April, 2006. Certain of theequity holders in Kinghing Securities have provided undertakings in writing to Shangsan Co to repay Shangsan Co the amounts of capital contribution by Shangsan Co on their behalf respectively, of an aggregate amount of RMB108 million, by assigning to Shangsan Co their rights to receive future dividends from Kinghing Securities, until their repayment obligations are discharged in full. Completion of each of the Acquisitions is conditional upon the Agreements beingapproved by (i) the equity owners of Kinghing Securities as required under its articles of association and (ii) the CSRC. The approval from the equity owners of Kinghing Securities and the CSRC is expected to be obtained in May 2006 and completion of each of the Acquisitions is expected to take place following the obtaining of these approvals. In addition, the 11.41% equity interest in Kinghing Securities being acquired by Shangsan Co from Kinghing Investment is subject to the completion of enforcement of the PRC Court Judgment dated 19th April, 2006 ordering the transfer of such equity interest from a third party to Kinghing Investment. Theenforcement of the PRC Court Judgment is currently expected to be completed on or before 31st May, 2006. Kinghing Securities is a limited liability company established under PRC laws and is licensed to carry out certain securities related businesses. The Acquisitions contemplated under the Agreements, in aggregate, constitute a discloseable transaction of the Company under the Listing Rules. A circular containing further details of the Acquisitions under the Agreements will be despatched to the shareholders of the Company in due course. At the request of the Company, trading in the shares of the Company has been suspended from 9:30 a.m. on 21st April, 2006 pending the issue of this announcement. Application has been made to the Stock Exchange for the resumption of trading in the shares of the Company from 9:30 a.m. on 26th April, 2006. The Directors announce that, on 20th April, 2006, Shangsan Co, a subsidiary ofthe Company, entered into the Agreements to acquire in aggregate a 70.46%equity interest in Kinghing Securities.ACQUISITION AGREEMENTSShangsan Co has entered into the Agreements with each of Kinghing Investment,Taizhou Investment and Tonghe Investment for the Acquisitions of an aggregateof 70.46% equity interest in Kinghing Securities. Except for the identities ofthe transferor parties and the percentage of equity interest in KinghingSecurities to be acquired by Shangsan Co (for details, please refer to "TheAcquisitions" below), the principal terms of each of the Agreements areidentical.Date: 20th April, 2006. The Acquisitions: Shangsan Co has agreed to acquire as to 58.46% (in aggregate), 6% and 6% equity interest in Kinghing Securities from Kinghing Investment, Taizhou Investment and Tonghe Investment respectively. Consideration for the Nil consideration is payable to Kinghing Investment, Acquisitions: Taizhou Investment and Tonghe Investment for the Acquisitions. However, under the Agreements, Shangsan Co has agreed to participate in the Restructuring of Kinghing Securities, which will involve, among other things, Shangsan Co injecting additional capital in cash into Kinghing Securities. Please see the section headed "Restructuring of Kinghing Securities" below for further details of the Restructuring. Conditions for Completion of each of the Acquisitions is subject to completion: the Agreements being approved by (i) the equity owners of Kinghing Securities as required under its articles of association and (ii) the CSRC. The approval from the equity owners of Kinghing Securities and the CSRC is expected to be obtained in May 2006 and completion of the Acquisitions is expected to take place following the obtaining of these approvals. Completion of each of the Acquisitions is not subject to the completion of the other Acquisitions. Shangsan Co has entered into two separate agreements with Kinghing Investmentwith respect to the acquisition of 11.41% and 47.05% of the equity interest inKinghing Securities respectively. The 11.41% equity interest is subject to thecompletion of enforcement of the PRC Court Judgment dated 19th April, 2006ordering the transfer of such equity interest from a third party to KinghingInvestment. The enforcement of the PRC Court Judgment is currently expected tobe completed on or before 31st May, 2006.BACKGROUND AND RESTRUCTURING OF KINGHING SECURITIESKinghing Securities is a limited liability company established under PRC lawsand is licensed to carry on the businesses of securities broking, securitiesunderwriting, asset management, advising on securities investment andestablishment of securities investment funds, each in the PRC. KinghingSecurities carries on its businesses through its 20 operational branches and 16sales branches, which are mainly located in the Chang Jiang River Delta regionin the PRC. Kinghing Securities in turn owns a 60% equity interest in ShanghaiKinghing Securities Research Co., Ltd., which is engaged in businessesincluding the provision of investment advisory, corporate financing, corporatemanagement, and financial information consultation services, sales of computersand software. The holder of the remaining 40% equity interest in ShanghaiKinghing Securities Research Co., Ltd. and their ultimate beneficial owners arenot connected persons of the Company.Immediately prior to and after the Acquisitions, the total equity capital ofKinghing Securities is as follows:Name of the equity Percentage of holding in Percentage of holding in holders: the equity capital the equity capital immdediately prior to the immediately after the Acquisitions: Acquisitions: Shangsan Co Nil 70.46% (assuming that the enforcement of the PRC Court Judgment is completed) Kinghing Investment 58.46% (of which 11.41% is Nil subject to the enforcement of the PRC Court Judgment) Shanghai 10% 10% Telecommunications Taizhou Investment 10% 4% (Note) Tonghe Investment 10% 4% Shanghai Transportation 7.69% 7.69% Zhejiang Real Estate 3.85% 3.85% Note: On 20th April, 2006 and following the entering into the Agreements,Taizhou Investment transferred its remaining 4% equity interest in KinghingSecurities to Taizhou State-Owned.In consideration of each of the Acquisitions for an aggregate of the 70.46%equity interest in Kinghing Securities, Shangsan Co has agreed to participatein the Restructuring of Kinghing Securities as described below.Shangsan Co has agreed to inject additional capital into Kinghing Securitiesfor a total amount of RMB600 million in cash, of which RMB422.76 million ismade for itself and an aggregate of RMB177.24 million on behalf of certainholders of equity interests in Kinghing Securities in proportion to theirrespective interests in Kinghing Securities, in several instalments by 30thApril, 2006. Shanghai Telecommunications, Taizhou State-Owned and TongheInvestment have provided undertakings in writing to Shangsan Co to repayShangsan Co the amounts of capital contributed by Shangsan Co on theirrespective behalf, namely, RMB60 million, RMB24 million and RMB24 millionrespectively, by assigning to Shangsan Co their rights to receive futuredividends from Kinghing Securities, until their repayment obligations aredischarged in full. The Company currently expects to obtain an undertaking fromZhejiang Real Estate to repay the capital contribution of an amount of RMB23.1million made by Shangsan Co on its behalf before 31st May, 2006. However,Shanghai Transportation has refused to provide an undertaking to repay capitalcontribution of an amount of RMB46.14 million made by Shangsan Co on itsbehalf. Therefore, the Company does not expect receiving repayment fromShanghai Transportation of the amount of RMB46.14 million even if there is anydividend payable by Kinghing Securities to its equity holders in the future.Also, no guarantee or security will be provided to Shangsan Co by any equityowners of Kinghing Securities for the repayment of capital contribution made byShangsan Co on their behalf.The capital contribution to Kinghing Securities made by Shangsan Co on behalfof the equity holders of Kinghing Securities who have provided or will provideundertakings to repay Shangsan Co will be accounted as indebtedness of ShangsanCo. The capital contribution to Kinghing Securities made by Shangsan Co of anamount of RMB46.14 million on behalf of Shanghai Transportation who will notprovide an undertaking will be accounted as investment of Shangsan Co inKinghing Securities, even though the equity interest of Shangsan Co in KinghingSecurities will remain at 70.46%. The PRC legal advisers of the Company haveadvised the Company that it is legal under the PRC regulations for Shangsan Coto inject such capital on behalf of other equity holders of KinghingSecurities.The Company currently expects to receive dividends from Kinghing Securities forfull repayment of the amount of capital contribution made by Shangsan Co onbehalf of the other equity holders of Kinghing Securities according to theirundertakings provided to Shangsan Co in about five years' time. However, thereis no assurance that Kinghing Securities will distribute any dividends and thatShangsan Co will receive repayment for the amount of such capital contributionin the future.Apart from the RMB600 million additional capital contribution, there is noother capital commitment by Shangsan Co to Kinghing Securities.REASONS FOR THE ACQUISITIONSThe Company has been investing in treasury bonds issued by the PRC Governmentsince its listing on the Stock Exchange. Under the PRC laws, the Company isrequired to invest such bonds through a licensed securities firm in the PRC anddeposit such bonds with them. Since June 2001, the Company has invested itstreasury bonds through Kinghing Securities. Currently, the value of thetreasury bonds beneficially owned by the Company and held with KinghingSecurities is of an approximate aggregate amount of RMB587 million. Prior tothe date of the Agreements, Kinghing Securities had pledged the treasury bondsas security for certain third party repo trading transactions entered into byit through Shanghai Clearing, without prior notification to nor consent fromthe Company. Subsequent to the pledging of the treasury bonds, KinghingInvestment, the largest equity owner of Kinghing Securities at the relevanttime, had misappropriated funds of Kinghing Securities such that KinghingSecurities currently does not have sufficient funds to settle the relevant repotrading transactions, and as a result, the security over the treasury bondsbeneficially owned by the Company may be enforced.On 30th December, 2005, the Company was notified by the Zhejiang provincialgovernment of its decision to suspend the business of and to restructureKinghing Investment. The Company was also instructed by the Zhejiang provincialgovernment to temporarily suspend its trading of its treasury bonds held in itsinvestment account with Kinghing Securities for the sake of maintainingfinancial stability. As a result of this, the Company has been unable towithdraw the bonds from Kinghing Securities. On 10th March, 2006 and in thecourse of the investigation on Kinghing Investment led by the Zhejiangprovincial government, the Company became aware that the treasury bonds it heldwith Kinghing Securities were in risk of being enforced as security. TheCompany did not make an announcement at that time because the terms of theRestructuring had not been finalised before the Agreements were entered into on20th April, 2006 and there was no realised loss of the value of the bonds ifthe Company is able to prevent the enforcement of security through itsparticipation in the Restructuring.In light of the above circumstances, the Company has decided to participate inthe Restructuring, through which additional RMB600 million capital contributionwill be injected by Shangsan Co into Kinghing Securities, to enable KinghingSecurities to settle the repo trading transactions currently of an approximateamount of RMB600 million and to obtain the release of the security over thetreasury bonds beneficially owned by the Company. The Company has considered itto be highly likely that the Company would not be able to recover the amount ofapproximately RMB587 million of the Company's treasury bonds in full byclaiming against Kinghing Securities. By investing in Kinghing Securities, theCompany believes that it can avoid the potential loss of the value of thebonds.The Company expects to be repaid for the full value of the treasury bonds afterthe Restructuring is completed, as it would then have control over KinghingSecurities, which in turn will have the sufficient funds to settle the relevantrepo trading transactions, and to release the security over the bonds. Upon thecompletion of the Acquisitions, the Company will also be interested in 70.46%in Kinghing Securities. Kinghing Securities will be treated as a subsidiary ofthe Company and will be consolidated into the Company's financial statementsafter completion of the Acquisitions.Based on the Audited Financial Report, as at 31st December, 2005, KinghingSecurities had a negative net asset value of RMB187,877,793. For the year ended31st December, 2005, the operating cash inflow of Kinghing Securities from itsoperating activities was RMB273 million and operating cash outflow was RMB317million, with net cash outflow amounting to RMB44 million, according to theAudited Financial Report.Based on the Audited Financial Report, the net loss before and after taxation,minority interest and extraordinary items attributable to the assets ofKinghing Securities for the year ended 31st December, 2005 were RMB80,573,704and RMB719,414,903 respectively and the taxation, minority interest andextraordinary items were RMB37,893, RMB-3,339,618 and RMB642,142,923respectively. Of the RMB642,142,923 amount of extraordinary items,RMB607,342,923 relates to the loss due to the misappropriation of funds inKinghing Securities by Kinghing Investment and the remaining RMB34,800,000relates to a loss due to the payment of guarantee obligations of KinghingSecurities. Also based on the Audited Financial Report, the net loss before andafter taxation, minority interest and extraordinary items for the year ended31st December, 2004 were RMB48,660,386 and RMB50,427,093 respectively. However,the Company expects that, immediately following the completion of theRestructuring and the injection of the RMB600 million new capital to KinghingSecurities and Kinghing Securities' settlement of the relevant tradingtransactions, the book value of the total assets of Kinghing Securities will bebetween RMB400 million to RMB450 million. Kinghing Securities currently hassufficient working capital for its operations of business and to satisfy theminimum requirements under the relevant PRC regulations.The Company intends to set up a management team with suitable qualifications tosupervise the day-to-day operations of Kinghing Securities. The Company isoptimistic that the business of Kinghing Securities will be turned around underthe improving business environment for securities companies in the PRC.The independent non-executive Directors of the Company have expressed concernsover the Acquisitions, in particular the investment is in a securities companywhich carries on business outside the scope of business of the Group and thefinancial risks borne by the Company if Shangsan Co is unable to dispose of itsinterests in Kinghing Securities in the future. The Company understands theconcerns of the independent non-executive Directors, however, having assessedthe potential loss of the Company of an amount of approximately RMB587 millionof the bonds held with Kinghing Securities and the potential income earningopportunities of Kinghing Investment in the future, considered that it was inthe best interests of the Company to enter into the Agreements.The Directors (including the independent non-executive Directors, except forMr. Zhang Yang who abstained in voting in the meeting of the board of directorsapproving the Agreements), having regard to the background of the Acquisitionsas described above, believe that the terms of the Agreements, which weredetermined after arm's length negotiations, are the best terms the Companycould obtain under such circumstances, and are fair and reasonable and in theinterests of the Company and the shareholders of the Company as a whole.The Acquisitions contemplated under the Agreements, in aggregate, constitute adiscloseable transaction of the Company under the Listing Rules and is requiredto be disclosed by way of this announcement and a circular containing furtherdetails of the Acquisitions to be despatched to the shareholders of the Companyin due course.The Company has no intention to change the Group's current principalbusinesses, being the investment in and development of, expressways in theZhejiang Province of China.BASIS OF THE CONSIDERATIONThe consideration for the Acquisitions was determined after considering theassets and liabilities, profit and loss positions, the intrinsic investmentvalue of Kinghing Securities and arms-length negotiations between Shangsan Coand Kinghing Investment, Taizhou Investment and Tonghe Investment respectively.FUNDING FOR THE CAPITAL INJECTIONThe RMB600 million capital injection to Kinghing Securities by Shangsan Co willbe financed by the internal funds of Shangsan Co.RESTRICTIONS TO SUBSEQUENT SALEThe Agreements do not include any restriction on Shangsan Co for its sale ofthe equity interest in Kinghing Securities it acquired under the Agreements.Any subsequent sale of the equity interest by Shangsan Co shall comply with therelevant PRC laws.INFORMATION RELATING TO THE COMPANYThe Company was incorporated on 1st March, 1997 in the PRC and is a joint stocklimited company, currently with a registered share capital of RMB4,343,114,500(HK$4,097,277,830). The main business of the Group is investment in anddevelopment, operation, management and toll collection ofShanghai-Hangzhou-Ningbo Expressway and Shangsan Expressway, both in ZhejiangProvince of the PRC, as well as businesses ancillary to the operation of thetwo expressways, such as billboard advertising and operation of service areason the expressways.Shangsan Co is a PRC incorporated limited liability company owned as to 73.625%by the Company, 18.375% by Huajian Transportation Economic Development Center,5% by Tiantai County Transport Development Company and 3% by Shangyu MunicipalTransport Investment Company. Huajian Transportation Economic DevelopmentCenter is a substantial shareholder (as defined in the Listing Rules) of theCompany whereas Tiantai County Transport Development Company and ShangyuMunicipal Transport Investment Company are independent third parties of theCompany. The principal business of Shangsan Co is the investment in theShangsan Expressway operated by the Group.INFORMATION RELATING TO COUNTERPARTIES OF THE AGREEMENTSKinghing Investment is a PRC incorporated limited liability company engaged inbusinesses including provision of trustee and custodian, fund management,corporate financing, corporate management, financial advisory, securitiesunderwriting, investment management services.Taizhou Investment is a PRC incorporated limited liability company engaged inbusinesses including provision of investment management and corporatemanagement advisory services, and investment.Tonghe Investment is a PRC incorporated limited liability company engaged ininvestments as permitted by the PRC laws and regulations.Shanghai Telecommunications is a PRC incorporated limited liability engaged inbusinesses including telecommunications, manufacturing of communicationequipment and computers, communication engineering and relevant consultingservices.Shanghai Transportation is a PRC incorporated limited liability engaged inbusinesses including road transport, vehicle repair, manufacturing of vehicleparts, construction equipment and special vehicles, and sales of specialvehicles.Zhejiang Real Estate is a PRC incorporated limited liability engaged inbusinesses including real estate development, indoor furnishings, and wholesaleand retail of construction materials.To the best of the Directors' knowledge, information and belief and afterhaving made all reasonable enquiry, Kinghing Investment, Taizhou Investment,Tonghe Investment Shanghai Telecommunications, Shanghai Transportation andZhejiang Real Estate, and their respective ultimate beneficial owners, arethird parties independent of the Company and its connected persons of theCompany.At the request of the Company, trading in the shares of the Company has beensuspended from 9:30 a.m. on 21st April, 2006 pending the issue of thisannouncement. Application has been made to the Stock Exchange for theresumption of trading in the shares of the Company from 9:30 a.m. on 26thApril, 2006.DEFINITIONSIn this announcement, unless the context otherwise requires, terms used hereinshall have the following meanings:"Acquisitions" means the acquisitions by Shangsan Co for an aggregate of 70.46% equity interest in Kinghing Securities, as to 58.46% (in aggregate), 6% and 6% equity interest from Kinghing Investment, Taizhou Investment and Tonghe Investment respectively under the Agreements; "Agreements" means the (i) two agreements entered into between Shangsan Co and Kinghing Investment, (ii) one agreement entered into between Shangsan Co and Taizhou Investment and (iii) one agreement entered into between Shangsan Co and Tonghe Investment, each on 20th April, 2006, whereby Shangsan Co has agreed to acquire 47.05%, 11.41%, 6% and 6% of the equity interest in Kinghing Securities respectively; "Audited Financial means the audited financial report [2006] No.536 prepared Report" by the Company's accountants in the PRC, Zhejiang Tianjian Accounting Firm Co., Ltd., in relation to Kinghing Securities, and prepared in accordance with the generally accepted accounting principles in the PRC; "Company" means Zhejiang Expressway Co., Ltd., a joint stock limited company incorporated in the PRC, whose shares are listed on the main board of the Stock Exchange; "connected person(s) have the same meaning given to it under the Listing Rules;" "Directors" means the directors of the Company; "CSRC" means the China Securities Regulatory Commission; "Group" means the Company and its subsidiaries; "Kinghing means Kinghing Securities Co., Ltd., a limited liability Securities" company incorporated in the PRC in May 2002; "Kinghing means Kinghing Trust Investment Co., Ltd., a PRC Investment" incorporated limited liability company (limited by shares); "Listing Rules" means the Rules Governing the Listing of Securities on the Stock Exchange; "PRC" means the People's Republic of China; "PRC Court Judgment" means the civil judgment of the Zhejiang Jinhua City Intermediate People's of the Court dated 19th April, 2006 pursuant to which a third party is ordered to transfer its 11.41% equity interest in Kinghing Securities to Kinghing Investment; "Restructuring" means the restructuring of Kinghing Securities as described in the section headed "Background and Restructuring of Kinghing Securities" in this announcement; "Shanghai Clearing" means the Shanghai branch of the PRC Securities Registration and Clearing Co., Ltd., the entity authorised by the CSRC and the State Administration for Industry and Commerce to carry out registration and clearing services for securities tradings in the PRC; "Shanghai means Shanghai National Telecommunications Co., Ltd., a Telecommunications" PRC incorporated limited liability company; "Shanghai means Shanghai Transportation Co., Ltd., a PRC Transportation" incorporated limited liability company; "Shangsan Co" means Zhejiang Shangsan Expressway Co., Ltd., a PRC incorporated limited liability company which is owned as to 73.625% by the Company, 18.375% by Huajian Transportation Economic Development Center, 5% by Tiantai County Transport Development Company and 3% by Shangyu Municipal Transport Investment Company ; "Stock Exchange" means The Stock Exchange of Hong Kong Limited; "Taizhou means Taizhou State-owned Assets Operations Co., Ltd., a State-Owned" company solely owned by the State of the PRC; "Taizhou Investment" means Taizhou City Investment and Management Co., Ltd., a PRC incorporated limited liability company; "Tonghe Investment" means Tonghe Investment Holdings Co., Ltd., a PRC incorporated limited liability company; and "Zhejiang Real means Zhejiang Hexin Real Estate Co., Ltd., a PRC Estate" incorporated limited liability company. By Order of the Board ZHANG Jingzhong Company Secretary Hangzhou, the PRC, 25th April, 2006As at the date of this announcement, the executive directors of the Companyare: Messrs. Geng Xiaoping, Fang Yunti, Zhang Jingzhong and Jiang Wenyao; thenon-executive directors are: Messrs. Zhang Luyun and Zhang Yang; and theindependent non-executive directors are: Messrs. Tung Chee Chen, Zhang Junshengand Zhang Liping.ENDZHEJIANG EXPRESSWAY CO LDRelated Shares:
ZHEH.L