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China Railway Group Limited : CONTINUING CONNECTED TRANSACTION COMPREHENSIVE SERVICES RENEWAL AGREEMENT

03/28/2013 | 05:12pm US/Eastern
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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.

CHINA RAILWAY GROUP LIMITED

(A joint stock limited company incorporated in the People's Republic of China with limited liability)

(Stock Code: 390) CONTINUING CONNECTED TRANSACTION COMPREHENSIVE SERVICES RENEWAL AGREEMENT

On 28 March 2013, the Company entered into the Comprehensive Services Renewal Agreement with CRECG in relation to the mutual provision of comprehensive services between the CRECG Group and the Group.
CRECG is the controlling shareholder of the Company and is therefore a connected person of the Company under the Listing Rules. As a result, the Comprehensive Services Renewal Agreement constitutes a continuing connected transaction of the Company under the Listing Rules. As the relevant percentage ratios in respect of the maximum transaction value on an annual basis relating to the Comprehensive Services Renewal Agreement exceed 0.1% and are below 5%, it constitutes a non-exempt continuing connected transaction of the Company under the Listing Rules and is subject to the reporting and announcement requirements, but is exempt from independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

BACKGROUND

Reference is made to the prospectus of the Company dated 23 November 2007 in relation to, among other things, the Comprehensive Services Agreement entered into between the Company and CRECG. Pursuant to the Comprehensive Services Agreement, CRECG and/or its associates will provide social services to the Group, including health check, vaccination and preventive medical services, on-site medical services, prevention of occupational-illness and other specialist medical services to employees of the Group as well as training to the Group's employees.
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The term of the Comprehensive Services Agreement commenced on the date of the agreement and expired on 31 December 2009, it was renewed for a further term of three years on 1
January 2010 and was expired on 31 December 2012.
Starting from 2013, the Group will also provide assets management services to the CRECG Group during the normal course of business of the Group.
On 28 March 2013, the Company entered into the Comprehensive Services Renewal Agreement with CRECG, in relation to the mutual provision of comprehensive services between the CRECG Group and the Group.

COMPREHENSIVE SERVICES RENEWAL AGREEMENT

The principal terms of the Comprehensive Services Renewal Agreement are set out below.

Parties: (i) t h e Company (for itself and on behalf of its subsidiaries)

(ii) CRECG (for itself and on behalf of its subsidiaries)

Comprehensive services to be provided by CRECG Group to the Group:

(i) training to the Group's employees;
(ii) medical services, including but not limited to health check, on-site medical services, vaccination and preventive medical services, prevention of occupational-illness and other specialist medical services to employees of the Group;
(iii) property management services, including but not limited to environmental protection, equipment maintenance, provision of parking lot, sewage treatment, security and gardening services.

Comprehensive services to be provided by the Group to CRECG Group:

(i) manage the assets of China Railway Hongda, including but not limited to the provision of management and maintenance services and disposal of assets with the consent of China Railway Hongda; and
(ii) manage the operations of China Railway Hongda, including but not limited to the daily operational and human resources management.
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Term: Effective from 1 January 2013 to 31 December 2015 (subject to renewal for a further term of three years upon agreement of the parties provided the requirements of the applicable rules of the stock exchange in which the Company is listed are complied with). Pricing principles: The following general pricing principles apply to the determination of services charges payable under the Comprehensive Services Renewal Agreement:

(i) State-prescribed prices, being the prices set by the relevant laws, regulations and other governmental regulatory documents issued by the relevant authorities of the Chinese government;
(ii) where there is no State-prescribed price, then according to the State-recommended price;
(iii) where there is no State-prescribed price or State- recommended price, then according to the relevant market prices;
(iv) where there is no relevant market price, then according to the prices at which comparable types of services are provided from/to independent third parties to/from the Group;
(v) where there is no relevant market price or prices at which comparable types of services are provided from/to independent third parties to/from the Group, then according to the prices negotiated between the parties.

Historical figures

For the three years ended 31 December 2010, 2011 and 2012, the payment made by the Group to the CRECG Group in relation to the comprehensive services covered under the Comprehensive Services Agreement amounted to RMB83,137,000, RMB50,733,000 and RMB45,987,000 respectively.
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Annual Caps For the financial year ending 31 December 2013

(Note)

2014 2015

RMB RMB RMB

Provision of comprehensive services by
CRECG Group to the Group 78,200,000 78,200,000 78,200,000
Provision of comprehensive services by
the Group to CRECG Group 4,500,000 4,500,000 4,500,000

Note: For the avoidance of doubt, the mutual provision of comprehensive services between the CRECG Group and the Group from 1 January 2013 up to the date of the Comprehensive Services Renewal Agreement shall be included in the calculation of the maximum amount of comprehensive services to be mutually provided between the CRECG Group and the Group for the year ending 31 December 2013.

Reasons for and basis for determining the Annual Caps

The Annual Caps were determined by reference to the historical transaction amount under the Social Services Agreement and the estimated value of transactions under the Comprehensive Services Renewal Agreement that are expected to be entered into in 2013, 2014 and 2015.

REASONS FOR AND BENEFITS OF THE COMPREHENSIVE SERVICES RENEWAL AGREEMENT

The Directors consider that the Comprehensive Services Renewal Agreement is consistent with the business and commercial objectives of the Group, the provision of comprehensive services by CRECG Group can enhance the operational efficiency of the Group. The Directors consider that the entering into of the Comprehensive Services Renewal Agreement is necessary and appropriate for the Company to effectively regulate the mutual provision of existing and new comprehensive between the CRECG Group and the Group.

GENERAL

The non-executive Director and the independent non-executive Directors are of the view that the terms of the Comprehensive Services Renewal Agreement and the transactions contemplated thereunder (together with the Annual Caps) are on normal commercial terms, and are fair and reasonable and in the interests of the shareholders of the Company as a whole. Executive Directors (Mr. Li Changjin (the chairman of CRECG), Mr. Bai Zhongren (a director of CRECG) and Mr. Yao Guiqing (a director of CRECG) who are deemed interested in the transaction abstained from voting on the board resolution in relation to the Comprehensive Services Renewal Agreement) concurred with the view of the non-executive Director and the independent non-executive Directors.
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IMPLICATIONS UNDER THE LISTING RULES

CRECG is the controlling shareholder of the Company and is therefore a connected person of the Company under the Listing Rules. As a result, the Comprehensive Services Renewal Agreement constitutes a continuing connected transaction of the Company under the Listing Rules.
As the relevant percentage ratios in respect of the maximum transaction value on an annual basis relating to the Comprehensive Services Renewal Agreement exceed 0.1% and are below
5%, it constitutes a non-exempt continuing connected transaction of the Company under the Listing Rules and is subject to the reporting and announcement requirements, but is exempt from independent shareholders' approval requirement under Chapter 14A of the Listing Rules.

INFORMATION ABOUT THE PARTIES

CRECG, a state-owned enterprise, is the controlling shareholder of the Company holding approximately 56.10% interest in the Company. Its principal activities are construction works and related technological research, survey, design and consulting services, manufacturing of specialised equipment, operation and development of real estate.
The Group is primarily engaged in infrastructure construction, survey, design and consulting services, engineering equipment and component manufacturing, property development and other businesses.

DEFINITIONS

In this announcement, the following expressions have the meanings set out below unless the context requires otherwise:
"Annual Caps" t h e maximum aggregate annual amount payable by the Group to the CRECG Group and payable by CRECG Group to the Group under the Comprehensive Services Renewal Agreement for each of the financial years ending 31
December 2013, 2014 and 2015
"associate" has the meaning ascribed to it under the Listing Rules
"Board" the board of Directors
"China Railway Hongda" (China Railway Hongda Asset Management Centre), a peoples collective-owned enterprise incorporated under the laws of the PRC, and is wholly- owned by CRECG
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"Company" China Railway Group Limited (

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