Chu Kong Ptrlm&Ntrl Gs Stl Pipe Hldg : Announcements and Notices - Discloseable Transaction Finance Lease Arrangement

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珠江石油天然氣鋼管控股有限公司

The Board announces that on 23 April 2014 (after trading hours), PCKSP, the Lessor and PCKSP (Liangyungang), entered into the Finance Lease Agreements, pursuant to which PCKSP has agreed to sell the Equipment to the Lessor at a consideration of RMB200 million and the Lessor has agreed to leaseback the Equipment to PCKSP at a total lease payments of approximately RMB235.84 million. PCKSP (Lianyungang) has agreed to guarantee the obligations of PCKSP under the Finance Lease Arrangement.

As one or more of the applicable percentage ratios (as defined in Chapter 14 of the Listing Rules) for the Finance Lease Arrangement exceed 5% but are less than 25%, the Finance Lease Arrangement constitutes a discloseable transaction of the Company and is subject to the announcement requirement under Chapter 14 of the Listing Rules.

The Board announces that on 23 April 2014 (after trading hours), PCKSP, the Lesseor and PCKSP (Lianyungang), entered into the Finance Lease Agreements, pursuant to which PCKSP has agreed to sell the Equipment to the Lessor at a consideration of RMB200 million and the Lessor has agreed to leaseback the Equipment to PCKSP at a total lease payments of approximately RMB235.84 million. PCKSP (Lianyungang) has agreed to guarantee the obligations of PCKSP under the Finance Lease Arrangement.
Details of the Finance Lease Arrangement are summarised as follows:
Date of the Finance Lease
Agreements
: 23 April 2014
Parties to the Finance Lease
Arrangement
: (i) PCKSP as seller and lessee
(ii) the Lessor as the purchaser and lessor
(iii) PCKSP (Lianyungang) as guarantor

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To the best of the Directors' knowledge, information and belief, and having made all reasonable enquiries, the Lessor and its ultimate beneficial owners are Independent Third Parties.

Pursuant to the Finance Lease Arrangement, PCKSP has agreed to sell and the Lessor has agreed to purchase the Equipment at a consideration of RMB200 million, which shall be paid by the Lessor to PCKSP in cash. The Equipment will then be leased back by the Lessor to PCKSP for a period of 5 years from the date upon which the aggregate consideration for the purchase of the Equipment has been paid by the Lessor at a total lease payments of approximately RMB235.84 million (including the principal amount of RMB200 million and the interest payment of approximately RMB35.84 million), which shall be paid by PCKSP to the Lessor in 20 quarterly instalments in arrears of approximately RMB11.79 million each with the first instalment being payable on 21 July 2014.
The total interest payable under the Finance Lease Arrangement amounts to approximately RMB35.84 million, which is calculated at a fixed annual interest rate of 6.4% (as determined in reference to the benchmark loan rate published by the People's Bank of China). The principal amount of RMB200 million paid by the Lessor to PCKSP shall be subject to deductions of a guarantee deposit of RMB26 million as security amount of its performance under the Finance Lease Arrangement and a service charge of RMB10 million.
During the lease period, in case of any adjustment made to the benchmark loan rate published by the People's Bank of China, the Lessor will make an equivalent adjustment to the aforesaid fixed annual interest rate.
The terms of the Finance Lease Arrangement, including the consideration, the total lease payments, the interest rate and other charges contemplated under the Finance Lease Agreements, were determined after arm's length negotiation between PCKSP and the Lessor with reference to the original aggregate purchase costs of the Equipment of approximately RMB 258.83 million and also the prevailing market prices of similar products available in the PRC.

The Equipment comprises the LSAW-UOE production line and ERW production line of PCKSP located in Panyu, Guangzhou, PRC. During the lease period, the legal ownership of the Equipment will belong to the Lessor. Upon the expiration of the lease, PCKSP can purchase the Equipment at a nominal consideration of RMB100.

PCKSP (Lianyungang) has agreed to provide a guarantee in favour of the Lessor for the obligations of PCKSP, which is equivalent to the aggregate amount of approximately RMB235.84 million payable by PCKSP under the Finance Lease Arrangement. Such guarantee will last until two years after the expiration of the lease.

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The Directors are of the view that the Finance Lease Arrangement would enhance the working capital position of the Group by leveraging its existing production equipment, and would allow the Group to optimise its asset and debt structure through increasing the percentage of long-term loan and reducing the short-term loan. The overall gearing ratio of the Group will remain unchanged. The Directors expect that there will not be any gain or loss accrued to the Group in its consolidated financial statements pursuant to the sale and the lease of the Equipment under the Finance Lease Arrangement.
The Directors are of the view that the terms in respect of the Finance Lease Arrangement are fair and reasonable and are in the interest of the Company and the shareholders of the Company as a whole.

The Company is an investment holding company and through its subsidiaries, including PCKSP and PCKSP (Lianyungang), is principally engaged in the manufacturing and sales of welded steel pipes.
The Lessor is principally engaged in the business of finance lease. To the best of the Directors' knowledge, information and belief, and having made all reasonable enquiries, the Lessor and its ultimate beneficial owners are Independent Third Parties.

As one or more of the applicable percentage ratios (as defined in Chapter 14 of the Listing Rules) for the Finance Lease Arrangement exceed 5% but are less than 25%, the Finance Lease Arrangement constitutes a discloseable transaction of the Company and is subject to the announcement requirement under Chapter 14 of the Listing Rules.

In this announcement, unless the context requires otherwise, the following expressions have the following meanings:
"Board" the board of Directors
"Company" Chu Kong Petroleum and Natural Gas Steel Pipe Holdings
Limited (珠江石油天然氣鋼管控股有限公司), a company
incorporated in the Cayman Islands with limited liability and the shares of which are listed and traded on the Stock Exchange
"Director(s)" the director(s) of the Company
"Equipment" the production equipment and facilities of PCKSP being the subject matter of the Finance Lease Arrangement, which are more particularly described in the paragraph headed "The Finance Lease Arrangement-The Equipment and its

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ownership" of this announcement
"ERW" electric resistance welding technology, a welding technology used in the manufacture of pipes under which pipes are made from strips of hot rolled steel coil which are passed through forming rolls and welded by using heat generated by high frequency electric current passing over the surface of the strips
"Finance Lease Agreements" collectively, (i) the equipment sale and purchase agreement between PCKSP as seller and Lessor as purchaser in respect of the sale and purchase of the Equipment; (ii) the finance lease agreement between the Lessor as lessor and PCKSP as lessee in respect of the lease of the Equipment; and (iii) the guarantee among the Lessor, PCKSP and PCKSP (Lianyungang) pursuant to which PCKSP (Lianyungang) has agreed to guarantee the obligations of PCKSP under the finance lease agreement describe in (ii) above, all dated 23
April 2014
"Finance Lease Arrangement" the finance lease arrangement in relation to the finance lease of the Equipment pursuant to the Finance Lease Agreements
"Group" collectively, the Company and its subsidiaries from time to time
"Independent Third Parties" individual(s) or company(ies) which is/are independent of and not connected with (within the meaning of the Listing Rules) any member of the Group, the Directors, chief executive and substantial shareholders of the Company and its subsidiaries and their respective associates
"Lessor" 國銀金融租賃有限公司 (CDB Leasing Co Limited), which to the best of the Directors' knowledge, information and belief, and having made all reasonable enquiries, is a limited liability company established in the PRC and controlled by China Development Bank
"Listing Rules" the Rules Governing the Listing of Securities on the Stock
Exchange
"LSAW" longitudinal submerged arc welded production method that steel pipes are formed by utilising the double-sided submerged arc welding technology with longitudinal weld seam, i.e. pipes are made from strips of hot rolled steel plates which are welded as they are formed
"PCKSP" 番禺珠江鋼管有限公司 (Panyu Chu Kong Steel Pipe Co., Ltd.*), a company established in the PRC with limited liability and a wholly owned subsidiary of the Company

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"PCKSP (Lianyungang)" 番禺珠江鋼管(連雲港)有限公司 (Panyu Chu Kong Steel Pipe (Lianyungang) Co., Ltd.*), a company established in the PRC with limited liability and a wholly owned subsidiary of the Company
"PRC" the People's Republic of China, which, for the purpose of this announcement, excludes Hong Kong, the Macau Special Administrative Region and Taiwan
"RMB" Renminbi, the lawful currency of the PRC
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"UOE" a production method for LSAW steel pipes pursuant to which steel plates will pass through both the U-shape and O-shape forming processes and then welded together as they are formed before the mechanical expansion
"%" per cent

* Unofficial transliteration from Chinese name for identification purposes only

Guangdong Province, the PRC, 23 April 2014
By order of the Board

Chairman

As at the date of this announcement, the Board comprises three executive Directors, namely Mr. Chen Chang, Ms. Chen Zhao Nian and Ms. Chen Zhao Hua; and three independent non-executive Directors, namely Mr. Chen Ping, Mr. Liang Guo Yao and Mr. See Tak Wah.

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