RNS Number : 2610P
Zhejiang Southeast Elec Power Co Ld
21 March 2009
Zhejiang Southeast Electric Power Company Limited
Announcement on Regular Connected Transactions
Key Information Contained Herein:
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The transactions: (1) the Company proposes to renew Financial Services Cooperation Agreement with Zhejiang Energy Group Finance Co., Ltd; (2) the Company proposes to enter into Natural Gas Sales Agreement with Zhejiang Natural Gas Development Co., Ltd.; and (3) the Company proposes to enter into Energy Service Cooperation Framework Agreement with Zhejiang Xingyuan Investment Co., Ltd.
2. The following connected persons abstained from the voting: connected directors Mao Jianhong, Zhang Qian, Cao Lu and Wang Lina.
3. Effect of the transactions on the sustainability, profits and losses, and assets status of the Company: the above contemplated connected transactions are fair and reasonable, and will not impose negative effects on the sustainability, profits and losses, and assets status of the Company.
I. Overview of the Connected Transactions
1. The Company proposes to renew Financial Services Cooperation Agreement with Zhejiang Energy Group Finance Co., Ltd (hereinafter 'Finance Company'), under which Finance Company will provide to the Company financial services under its business scope.
In September 2006 at its first Extraordinary General Meeting of 2006, the Company passed the resolution to enter into Financial Services Cooperation Agreement with Zhejiang Energy Group Finance Co., Ltd. Due to the impending expiration of the agreement, the Company proposes to renew the agreement with Finance Company while retaining the primary terms and conditions therein.
2. The Company proposes to enter into Natural Gas Sales Agreement with Zhejiang Natural Gas Development Co., Ltd. (hereinafter 'Natural Gas Company'), under which, Natural Gas Company will supply to the Company natural gas needed for the power generation at the natural gas Generation turbines at Xiaoshan Power Plant.
3. The Company proposes to enter into Energy Service Cooperation Framework Agreement with Zhejiang Xingyuan Investment Co., Ltd. (hereinafter 'Xingyuan Company'), under which, Xingyuan Company will provide energy-related services to the Company.
Given that Finance Company, Natural Gas Company and Xingyuan Company are all controlled subsidiaries of Zhejiang Energy Group Co., Ltd. (hereinafter 'Zheneng Group'), and the fact that Zhejiang Electric Power Development Co., Ltd., the biggest shareholder of the Company is a wholly-owned subsidiary of Zheneng Group, the three aforementioned agreements contemplated to be entered into will constitute connected transactions.
Such connected translations have been approved at the Twenty-Ninth Meeting of the Fourth Session of the Board of Directors of the Company, whereby connected directors, namely, Mao Jianhong, Zhang Qian, Cao Lu, and Wang Lina abstained to vote. Pursuant to provisions under Listing Rules of Shanghai Stock Exchange, the resolution will be submitted for review at the Annual General Meeting of 2008 of the Company, whereby connected shareholders will abstain from voting.
II Information on the Connected Parties
(I) Basic Information of the Connected Parties
Finance Company is a standard non-banking financial institution which was incorporated under the approval of the China Banking Regulatory Commission to provide financial management services to its member enterprise groups.
Finance Company has a registered capital of RMB 801.74 million; its legal representative is Shen Zhiyun; its authorized business scope includes act as corporate finance and financing advisor, provide credit certification and related consultation and representation services for the member companies, and assist member companies in the collection of account receivables for their transactions; engage in authorized insurance brokerage; sponsor member companies as needed, transact loans and investments entrusted by and between member companies, transact acceptance records and discount notes for member companies, realize account transfers, corresponding settlements and liquidation plans between member companies, develop settlement solutions, collect deposits from member companies, provide loans and financial leasing, and interbank lending, etc.
As at the end of 2008, Finance Company had a total asset of RMB 7.829 billion and a net asset of RMB 974 million.
2. Natural Gas Company
Natural Gas Company is the master purchaser and master seller of natural gas within the territory of Zhejiang Province, designated by Zhejiang Provincial People's Government.
Natural Gas Company has a registered capital of RMB 1.13 billion; its legal representative is Zhong Jianzhong; its authorized business scope includes the investment, construction, operation and management of the natural gas network, the wholesale of oil and natural gas, and the transportation through natural gas pipelines.
As at the end of 2008, Natural Gas Company had a total asset of RMB 2.69 billion and a net asset of RMB 1.03 billion.
3. Xingyuan Company
Xingyuan Company is a wholly-owned enterprise of Zheneng Group, which specializes in investment in the energy service industry, whose pivotal businesses are centered around environmental protection, logistics and construction materials.
Xingyuan Company has a registered capital of RMB 380 million; its legal representative is Fan Xiaoning; its authorized business scope includes industrial investment; small-scale hydroelectric power plants, small-scale thermal power stations, real estate investment, infrastructure constructions, IT engineering, environmental engineering, complete sets of electric power equipment, mechanical and electric equipment, distribution of metal materials, and real estate property management.
As at the end of 2008, Xingyuan Company had a total asset of RMB 2.977 billion and a net asset of RMB 1.048 billion.
(II) The Connected Relationship
The equity structure of Finance Company: out of the total equity, Zheneng Group holds 86%, Siemens Finance Service Co., Ltd. holds 5%, Zhejiang Zheneng Beilun Thermal Power Plant holds 3%, Zhejiang Zheneng Jiaxing Power Generation Co., Ltd. holds 2%, Zhejiang Zheneng Zhenhai Power Generation Co., Ltd. holds 2%, and Zhejiang Electric Power Construction Co.,Ltd. holds 2%.
The equity structure of Natural Gas Company: out of the total equity, Zheneng Group holds 40%, CNOOC Gas & Power Group Limited holds 30%, and China Petroleum & Chemical Corporation holds 30%.
Xingyuan Company is a wholly-owned subsidiary of Zheneng Group.
Zhejiang Electric Power Development Co., the biggest shareholder of the Company, is a wholly-owned subsidiary of Zheneng Group. Therefore the Company, Finance Company, Natural Gas Company and Xingyuan Company are all controlled by Zheneng Group.
III Key Information of the Connected Transactions and Pricing Policy
(I) Financial Services Cooperation Agreement
1. Key Information: Finance Company provides to the Company financial services under its authorized business scope, including services in relation to savings, loans, financial instruments and settlements, etc.
2. Pricing Policy: when the Company opens up savings account at Finance Company, and Finance Company pays an interest to the Company, which is not lower than the savings rate at the same period over the same type of saving published by the People's Bank of China; whereas, when the Company grants a loan to Finance Company, the loan interest should be, on the basis of the benchmark at the same period for the same type of loan, not lower than any other prime rates offered by any other financial institutions to the Company, nor should it be lower than the prime rates the Finance Company would offer to any other clients.
Pursuant to Financial Services Cooperation Agreement, Finance Company will provide an aggregate credit line of RMB 3.5 billion to the Company, and as at the end of the year, the Company's deposit in its savings account at Finance Company should not exceed RMB 1 billion.
The term 'Company' in the agreement refers to the Company itself and its controlled subsidiaries. This agreement has a validity of 25 September 2009 through 24 September 2012.
As at 31 December 2008, the Company had a saving balance of RMB 421,336,814.20 at Finance Company; the cumulative loans granted by Finance Company to the Company totaled RMB 1 billion. The Company had received an aggregate income from its savings interest of RMB 8,927,999.15, whilst the interest it paid out over loans totaled RMB 57,335,521.37.
(II) Natural Gas Sales Agreement
2. Pricing Policy: within the contractual quantity (refers to 20 million steers of natural gas, which is minimal to the maintenance of natural gas generators at Xiaoshan Power Plant), the natural gas should follow the price level set by the government (currently at RMB 1.85/std steer, tax included); for gas in excess of the contractual quantity, the surplus gas price should apply in the settlement, which is calculated as: on the basis of the prevalent sales price adopted at the natural gas storefronts, plus the premium demanded by upstream suppliers, and plus taxes deriving from the above. The surplus price should follow related price levels stipulated by the authoritative pricing offices.
Pursuant to Natural Gas Sales Agreement, Natural Gas Company should ensure the quantity of gas supply, and shall make all reasonable endeavors to supply additional quantity as demanded.
Validity of the Agreement is 1 January 2009 through 31 December 2009.
In 2008, Natural Gas Company supplied to the Company an aggregate quantity of 52.50 million steers, whilst the Company's payment totaled RMB 85.9489 million. It is projected that Natural Gas Company will supply natural gas of about 58 million steers to the Company in 2009.
(III) Energy Service Cooperation Framework Agreement
1. Key Information: Xingyuan Company will provide to the Company energy services in the following scope:
(1) Supply materials needed by the Company in its production, including related spare parts and consumption materials, etc.;
(2) Provide sourcing consultation, representation, bidding/enquiry service of the aforementioned production materials; supplier management, supply facilitation, processing, packaging, transportation, distribution and delivery, load and unload, warehouse storage, on dock service, site leasing, and any other element or the entire chain of logistic services;
(3) In compliance with its environmental protection requirements of the Company, process waste water and solid waste materials, etc. for the production flow of the Company; and achieve leveraged utilization to meet requirements, and provide related environmental equipment, engineering design, construction, testing and repairs and maintenance.
2. Pricing Policy: Xingyuan Company will provide to the Company energy services, the service fee it collects or prices it pays should be comparable to prevalent market prices at the time, subject to the arm-length translation principles, which should not be higher than prices it offers to other power plants for the same type of services or prices for materials it supplies to other companies, nor should they be higher than the mutually agreed price level or the price level generally obtainable in the marketplace by the Company.
The term 'Company' in the Agreement refers to the Company and its controlled subsidiaries. Xingyuan Compamy may, in view of the nature of the energy service needed by the Company, designate any of its controlled subsidiaries to implement.
The Agreement is valid 1 January 2009 through 31 December 2009.
Daily energy services and their monetary value realized between the Company and its subsidiaries during 2008 are as the follows:
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Connected Transaction
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Company Name
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Amount (RMB)
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Material Sourcing and Brokerage Service
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Zhejiang Fuxing Electric Power Fuel Co.,Ltd.
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7,018,523.51
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Changxing Jiafeng Environment Materials Co., Ltd.
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13,775,181.94
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Taizhou Jiafeng Environment Materials Co., Ltd.
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14,955,068.80
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Zhejiang Tianhong Material Trading Co., Ltd.
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15,466,496.66
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Zhejiang Tiangong Technology Engineering Co., Ltd.
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11,136,043.22
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Zhejiang Dongfa Environmental Engineering Co., Ltd.
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2,622,852.31
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Environmental Protection Engineering Contracting and Maintenance
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Zhejiang Dongfa Environmental Engineering Co., Ltd.
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27,078,354.18
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Equipment Leasing
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Zhejiang Dongfa Environmental Engineering Co., Ltd.
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789,231.98
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Total
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92,841,752.60
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It is projected that the daily energy services to take place between Xingyuan Company and its subsidiaries during 2009 will amount to RMB 180 million.
IV Objectives of the Connected Transactions
1. Financial Services Cooperation Agreement entered into between the Company and Finance Company should facilitate to lower the settlement costs, improve capital efficiency, control loan costs, and obtain convenient and quality services.
2. Natural Gas Sales Agreement entered into between the Company and Natural Gas Company on the basis of the upstream-downstream relationship in the natural gas industry, is a necessary condition precedent to ensure the sustainable production flow of Xiaoshan Power Plant.
3. Energy Service Cooperation Framework Agreement entered into between the Company and Xingyuan Company assists Xingyuan Company to further specialize, achieve economy of scale, lower operating costs of the company and enhance its related service quality.
V Views of the Independent Directors
1. In respect of Financial Services Cooperation Agreement, the Independent Directors are of the view that Finance Company as a standard non-banking financial institution approved by China Banking Regulatory Commission, specializing in providing financial services to the Company, complies with related provisions under laws of PRC. Finance Company's business scope, business matters and process flow, internal risk management system, and other measures are under the rigorous regulatory supervision of both China Banking Regulatory Commission and Zhejiang Banking Regulatory Bureau. Pursuant to Administration of the Finance Companies of Enterprises Groups, Finance Company has set an entire chain of internal risk control mechanism; the Financial Service Cooperation Agreement to be entered into has further requirements on the risk control of the company. Under such risk control conditions, it is agreed that Finance Company will provide financial services to the Company. The Independent Directors are of the view that the agreement complies with general commercial principles in that it is fair and reasonable, and in no adverse effect to the overall interests of the Company and its shareholders.
2. In respect of Natural Gas Sales Agreement, the Independent Directors are of the view that the Natural Gas Sales Agreement entered between the Company and Natural Gas Company is on the basis of normal production operations which have given rise to the industrial chain relationships of the natural gas industry. The prices of the transactions will follow authoritative pricing offices, which will be fair and reasonable, and in no adverse effect to the overall interests of the Company and its shareholders.
3. In respect of Energy Service Cooperation Framework Agreement, the Independent Directors are of the view that this agreement complies with general commercial principles, and in no adverse effect to the overall interests of the Company and its shareholders.
4. When the Board of Directors of the Company reviewed the aforementioned connected transactions, the Connected Directors abstained from the voting, the process of which was in compliance with related provisions under laws of PRC.
Board of Directors
Zhejiang Southeast Electric Power Company Limited
21 March 2009
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