COSCO SHIPPING DEVELOPMENT CO., LTD. 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.
(A joint stock limited company incorporated in the People's Republic of China with limited liability)
(Stock code: 02866)
The Board has been monitoring the Existing Continuing Connected Transactions. In view of the continuous development of the Group and based on the internal forecasts of forthcoming demand, the Board has decided to continue the Existing Continuing Connected Transactions after 31 December 2015.
In respect of the proposed annual caps for the year ending 31 December 2016 for the Renewed Continuing Connected Transactions Fully Exempt, the applicable percentage ratios are expected to fall below the de minimis threshold as stipulated under Rule 14A.76(1)(a) of the Listing Rules, and such transactions are therefore exempt from reporting, announcement, annual review and independent shareholders' approval requirements for continuing connected transactions under Chapter 14A of the Listing Rules.
In respect of the proposed annual caps for the year ending 31 December 2016 for the Renewed Continuing Connected Transactions Exempt from Independent Shareholders' Approval, the applicable percentage ratios are expected to be more than 0.1% but less than 5%. Therefore, such transactions, together with their respective proposed annual caps for the year ending 31 December 2016, are exempt from independent shareholders' approval and are only subject to the reporting, announcement and annual review requirements for continuing connected transactions under Chapter 14A of the Listing Rules.
In respect of the proposed annual caps for the year ending 31 December 2016 for the Renewed Non-Exempt Continuing Connected Transactions, the applicable percentage ratios are expected to be more than 25% but less than 75%. Therefore, such transactions, together with their respective proposed annual caps for the year ending 31 December 2016, are subject to the reporting, announcement, annual review and independent shareholders' approval requirements for continuing connected transactions under Chapter 14A of the Listing Rules. Such transactions also constitute major transactions of the Company under Rule 14.06(3) of the Listing Rules and are subject to the relevant major transaction requirements under Chapter 14 of the Listing Rules.
I RENEWAL OF EXISTING CONTINUING CONNECTED TRANSACTIONS
Background
The Board has been monitoring the Existing Continuing Connected Transactions. In view of the continuous development of the Group and based on the internal forecasts of forthcoming demand, the Board has decided to continue the Existing Continuing Connected Transactions after 31 December 2015.
General
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Connected Persons
China Shipping is the controlling shareholder of the Company. Therefore, China Shipping and its associate(s) are connected persons (as defined in the Listing Rules) of the Company under the Listing Rules.
Each of CS Agency (Bangkok), CS Agency (Indonesia), CS Finance Company, CSS, Dalian Terminal, Shanghai Terminal and West Basin is an associate of China Shipping and is therefore a connected person (as defined in the Listing Rules) of the Company under the Listing Rules.
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General Principles, Price and Terms
Each of the Existing Continuing Connected Agreements contains the binding principles, guidelines and terms and conditions in accordance with which any and all products and services contemplated thereby are to be provided by the relevant provider to the relevant recipient.
Each of the Existing Continuing Connected Agreements requires in general terms that:
the quality of such products and services to be provided should be satisfactory to the recipient;
the price at which such products and services are to be provided must be fair and reasonable; and
the terms and conditions on which such products and services are to be provided should be no less favourable to the Group than those offered from or to (as appropriate) the relevant connected persons, their subsidiaries and/ or associates to or from (as appropriate) independent third parties; and offered from or to (as appropriate) independent third parties to or from (as appropriate) the Group.
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Price Determination
Each of the Existing Continuing Connected Agreements (save and except for the Financial Services Framework Agreement) provides that each relevant product or service must be provided in accordance with the following general pricing principles:
state-prescribed prices;
where there is no state-prescribed price, then according to relevant market prices and on principle of fairness and reasonableness; or
where there is no market price, then according to the contracted price. For the purpose of each of the Existing Continuing Connected Agreements:
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Term and Termination
The initial term of each of the Existing Continuing Connected Agreements is three years, with effect from 10 May 2004, save and except for (i) the Revised Master Provision of Containers Agreement, the initial term of which is three years, with effect from 10 April 2007; (ii) the Financial Services Framework Agreement, the initial term of which is three years, with effect from 31 December 2009, (iii) the Master Tenancy Agreement, the initial term of which is three years, with effect from 31 December 2012, and (iv) the Master Purchase Agreement, the initial term of which is three years, with effect from 1 July 2013. Upon the expiry of such initial term, each of the Existing Continuing Connected Agreements shall automatically extend for further terms of three years (subject to compliance of the Listing Rules), unless any relevant party gives to the other party(ies) a written notice of termination at least three months prior to such expiry date.
During the term of each of the Existing Continuing Connected Agreements, termination of any implementation agreement described below may be effected from time to time by any one of the parties to the relevant implementation agreement providing at least a three months' written notice of termination to the other party(ies).
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Implementation Agreements
It is expected that from time to time and as required, individual implementation agreements may be entered into between the Group and the relevant Connected Persons, and their respective subsidiaries and/or associates, as appropriate.
Each implementation agreement will set out the specific products and services requested by the relevant party and any detailed technical and other specifications which may be relevant to those products or services. The implementation agreements may only contain provisions which are in all material respects consistent with the binding principles, guidelines, terms and conditions in accordance with which such products and services are required to be provided as contained in the relevant Existing Continuing Connected Agreements.
As the implementation agreements are simply further elaborations on the provision of the products and services as contemplated by each of the Existing Continuing Connected Agreements, they do not constitute new categories of continuing connected transactions under Chapter 14A of the Listing Rules.
- Internal Control Procedures
'state-prescribed price' means the price set by the relevant laws, regulations and other governmental regulatory documents issued by the relevant departments of the PRC government. For example, for the continuing connected transactions under the First Master Loading and Unloading Agreement and the Second Master Loading and Unloading Agreement, certain categories of services (such as container stevedore lump-sum-fee, cargo shifting fee and port carriage fee for the domestic trade lanes and international trade lanes) are pertained to state-prescribed guidance prices whose sources are the Rules of Port Charging, the Measures of Port Charging on Domestic Water Route Container and relevant notices promulgated by the PRC Ministry of Transport and other authorities, which rules are of a guidance nature;
'market price' means the price at which the same or comparable type of products or services are provided from or to (as appropriate) independent third parties in the same area on normal commercial terms in the ordinary course of business. Procedures and mechanism for determining market price are as follows: (i) the relevant department of the Company will collect applicable data and market information (including quotes from independent third parties and reference to independent third party entities such as Platts) and prepare draft proposal; (ii) the relevant department will seek advice (such as conditions of facilities and quality of products or services) from shipping route operation department and relevant agents and submit revised proposal to its supervising department's review; (iii) the relevant department will negotiate with transaction counterparties (including connected persons) based on such reviewed proposal; (iv) the Company will enter into implementation agreement based on results of negotiation; and (v) the executed implementation agreement will be forwarded to audit centre, finance department and shipping route operation department of the Company and relevant agents for recording and implementation; and
'contracted price' means the relevant cost incurred in providing such products or services plus a profit margin ranging from 0% to 12.25% thereof. For example, for the continuing connected transactions under the Master Provision of Crew Members Agreement, payment was calculated based on costs including expenses in respect of crew members incurred whilst on board vessels (such as basic salaries, performance bonuses, and other allowances and welfare benefits) and the expenses related to crew members incurred when they are not on board vessels plus the crew management fees charged at a unit rate for each vessel; and for products and services provided by the Group under the First Master IT Services Agreement, the costs consist of expenses invested by the Group for developing, upgrading and maintaining the IT system, and payment was calculated based on the IT system costs divided by the total container volume loaded by the Group during the year at a unit rate for each container.
Before entering into any implementation agreements, the Company will implement the following procedures to ensure the terms offered by the relevant connected parties are no less favourable than those available from independent third parties:
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