Connected Transactions

RNS Number : 4201W

Air China Ld

10 June 2008

 



The Stock Exchange of Hong Kong Limited takes no responsibility for the contents of this announcement, makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever for any loss whatsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

                                                                       AIR CHINA LIMITED

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

(Stock Code: 753)

CONNECTED TRANSACTIONS: 

SALE OF EQUITY INTEREST IN FLY TOP, CNAL AND JASL TO CNACG

AND ASSIGNMENT OF INDEBTEDNESS

SUMMARY

On 10 June 2008, CNAC, a wholly-owned subsidiary of the Company entered into the Agreement for the Sale and Purchase of the Sale Shares and the Agreement to Assign Indebtedness, respectively, with CNACG, which is both a substantial shareholder of the Company and the wholly-owned subsidiary of CNAHC, the Company's controlling shareholder. Pursuant to the Agreement for the Sale and Purchase of the Sale Shares, CNAC has agreed to sell and CNACG has agreed to purchase the entire issued share capital of each of Fly Top and CNAL and 50% of the issued share capital of JASL. Fly Top holds 60% of the issued share capital of each of Southwest Air Catering and Beijing Air Catering and 20.2% of the issued share capital of LSG. CNAL holds 25% of the issued share capital of Tradeport. The aggregate consideration payable by CNACG for the Sale Shares is RMB363,343,021. Pursuant to the Agreement to Assign Indebtedness, CNAC has agreed to assign to CNACG the indebtedness owed by Fly Top and CNAL to CNAC in the amounts of RMB438,072,034 and RMB48,584,945, respectively. The total transaction amount of the transactions above is RMB850,000,000.

Immediately prior to the completion of the Sale, the Company beneficially held 60% equity interest of the registered capital of each of Southwest Air Catering and Beijing Air Catering, 20.2% equity interest of the registered capital of LSG, 25% equity interest of the registered capital of Tradeport and 50% equity interest in the registered capital of JASL. Upon the completion of the Sale, the Company will not hold any equity interest, directly or beneficially, in the abovementioned companies.

As CNACG is both a substantial shareholder of the Company and a wholly-owned subsidiary of CNAHC, the Company's controlling shareholder, CNACG is therefore a connected person of the Company within the meaning of the Listing Rules. Accordingly, the Sale and the Assignment constitute connected transactions of the Company under the Listing Rules. As the relevant ratios are more than 0.1% but less than 2.5%, the connected transactions are subject to announcement and reporting requirements but exempted from independent shareholders' approval requirement under Rule 14A.34 of the Listing Rules.

DESCRIPTION OF THE CONNECTED TRANSACTIONS

On 10 June 2008, CNAC, a wholly-owned subsidiary of the Company entered into the Agreement for the Sale and Purchase of the Sale Shares and the Agreement to Assign Indebtedness with CNACG, which is both a substantial shareholder of the Company and the wholly-owned subsidiary of CNAHC, the Company's controlling shareholder. Pursuant to the Agreement for the Sale and Purchase of the Sale Shares, CNAC has agreed to sell and CNACG has agreed to purchase the entire issued share capital of each of Fly Top and CNAL and 50% of the issued share capital of JASL. Fly Top holds 60% of the issued share capital of each of Southwest Air Catering and Beijing Air Catering and 20.2% of the issued share capital of LSG. CNAL holds 25% of the issued share capital of Tradeport. Pursuant to the Agreement to Assign Indebtedness, CNAC has agreed to assign the indebtedness owed to it by Fly Top and CNAL to CNACG. The total transaction amount of the transactions above is RMB850,000,000.

The details of the connected transactions are summarized as follows.

1.     Agreement for the Sale and Purchase of the Sale Shares

(1)     Parties to the transaction 

(i)     CNAC, a wholly-owned subsidiary of the Company, as the seller, the principal business activity of which is investment holding; and 

(ii)     CNACG, a substantial shareholder of the Company, as the purchaser, which is an investment holding company principally engaging in the passenger terminal operation, cargo terminal operation, airport ground handling services, airline catering services, logistics and other businesses through its subsidiaries.

As CNACG is both a substantial shareholder of the Company and a wholly-owned subsidiary of CNAHC, the Company's controlling shareholder, CNACG is therefore a connected person of the Company within the meaning of the Listing Rules. Accordingly, the Sale constitutes a connected transaction of the Company under the Listing Rules.

(2)     Assets to be sold by CNAC under the Sale

Pursuant to the Agreement for the Sale and Purchase of the Sale Shares, 10 ordinary shares, being the entire issued share capital, of Fly Top, two ordinary shares, being the entire issued share capital, of CNAL and 500 ordinary shares, being 50% of the issued share capital, of JASL shall be transferred from CNAC to CNACG. Fly Top is an investment holding company which holds 60% of the issued share capital of each of Southwest Air Catering and Beijing Air Catering and 20.2% of the issued share capital of LSG. CNAL is also an investment company which holds 25% of the issued share capital of Tradeport. Upon completion of the Sale, the Company will not hold any equity interest in the abovementioned companies.

JASL principally engages in the provision of airport ground handling services for airlines at the Hong Kong International Airport.

Southwest Air Catering principally engages in the production of food, beverages, and other inflight services products, the provision of other related services and the sale of its own products.

Beijing Air Catering principally engages in the provision of inflight catering services and other related inflight food and beverage services, as well as the production of Chinese and western snacks and beverages.

LSG principally engages in the provision of flight catering services, laundry services and operations of airport lounges and restaurants at the Hong Kong International Airport.

Tradeport principally engages in the operation of a logistics centre at the Hong Kong International Airport.

Profits attributable to CNAC's equity interest in Fly Top, CNAL and JASL for the financial years of 2006 and 2007 were approximately RMB141 million and RMB80 million, respectively, before taxation and extraordinary items, and approximately RMB120 million and RMB62 million, respectively, after taxation and extraordinary items.

(3)     Consideration

As at 31 March 2008, the book value of the Sale Shares was approximately HK$239 million (approximately RMB216 million at the exchange rate of RMB0.90194 equivalent to HK$1).

Pursuant to the Agreement for the Sale and Purchase of the Sale Shares, the aggregate consideration payable by CNACG for the Sale Shares is RMB363,343,021, which shall be paid by electronic funds transfer on the payment date contemplated under the Agreement for the Sale and Purchase of the Sale Shares. CNACG will pay the consideration in Hong Kong dollars, the amount of which shall be calculated on the basis of the middle exchange rate of Renminbi against Hong Kong dollars published by the State Administration of Foreign Exchange of the People's Republic of China on the business day immediately preceding the payment date.

The consideration for the Sale is determined through arm's length negotiation and reflects the mutually agreed valuation of Southwest Air Catering, Beijing Air Catering, LSG, Tradeport and JASL. 

2.     Agreement to Assign Indebtedness

(1)     Parties to the transaction

(i)     CNAC as the assignor; and 

(ii)     CNACG as the assignee.

As CNACG is a connected person of the Company within the meaning of the Listing Rules, the Assignment constitutes a connected transaction of the Company under the Listing Rules.

(2)     Indebtedness to be assigned by CNAC under the agreement

Fly Top and CNAL are indebted to CNAC in the amount of RMB438,072,034 and RMB48,584,945, respectively. Such indebtedness shall be assigned to CNACG by CNAC pursuant to the Agreement to Assign Indebtedness.

(3)     Consideration

The aggregate consideration for the Assignment shall be RMB486,656,979 which comprises (1) RMB438,072,034 for the indebtedness owed by Fly Top and (2) RMB48,584,945 for the indebtedness owed by CNAL. The consideration shall be paid by electronic funds transfer on the payment date contemplated under the Agreement to Assign Indebtedness. CNACG will pay the consideration in Hong Kong dollars, the amount of which shall be calculated on the basis of the middle exchange rate of Renminbi against Hong Kong dollars published by the State Administration of Foreign Exchange of the People's Republic of China on the business day immediately preceding the payment date.

The consideration for the Assignment is determined through arm's length negotiation and reflects the mutually agreed valuation of the indebtedness owed by Fly Top and CNAL.

REASONS FOR AND BENEFITS OF THE TRANSACTIONS

The Company principally engages in air passenger, air cargo and airline-related services. By the sale of the flight catering business, airport ground handling business and logistics business, the Group will be able to more focus on providing air passenger and air cargo services and achieve optimal allocation of financial and human resources, which will contribute to the improvement of the core competence of the Company and the maximisation of its shareholders' interest as a whole. Meanwhile, CNACG possesses comparatively more management expertise and financial resources on flight catering, airport ground handling and logistics businesses than the Company. The Sale is expected to enable CNACG and its associate companies to further improve their service quality, which will in turn contribute to the improvement of the quality of the related services of the Company where we use CNACG as service provider.

The independent non-executive Directors consider that the abovementioned connected transactions are conducted on normal commercial terms or on terms no less favourable than those available to independent third parties, and that the abovementioned connected transactions are fair and reasonable and in the interests of the Company and the shareholders as a whole.

CONTINUING CONNECTED TRANSACTIONS

Currently the Company receives catering services and ground handling services from Beijing Air Catering, Southwest Air Catering and JASL under the following agreements: 

(1)     the Standard Catering Services Agreement between the Company and Beijing Air Catering, according to which Beijing Air Catering provides catering services to both the Company and Air China Cargo Co., Ltd.; 

(2)     the Standard Catering Services Agreement between the Company and Southwest Air Catering, according to which Southwest Air Catering provides catering services to both the Company and Air China Cargo Co., Ltd.; and

(3)     the IATA Standard Ground Handling Agreement between the Company and JASL, according to which JASL provides ground handling services to the Company.

Upon completion of the Sale, the abovementioned transactions will constitute continuing connected transactions under the Listing Rules as Beijing Air Catering, Southwest Air Catering and JASL will become associates of CNACG and therefore connected persons of the Company. The Company will comply with the announcement, reporting and independent shareholders' approval requirements set out in the Listing Rules as applicable when the abovementioned transactions are renewed or there is any material change to the terms of the agreements.

DEFINITION

In this announcement, unless the context otherwise requires, the following terms shall have the following meanings:

'Agreement for the Sale and   Purchase of the Sale Shares'	an agreement relating to the sale and purchase of the share in Fly Top, CNAL and JASL dated 10 June 2008 entered into between CNAC and CNACG pursuant to which, among other things, CNAC has agreed to sell and CNACG has agreed to purchase the entire issued share capital of each of Fly Top and CNAL and 50% of the issued share capital of JASL
'Agreement to Assign   Indebtedness'	an agreement relating to the assign of indebtedness owed by Fly Top and CNAL to CNAC dated 10 June 2008 entered into between CNAC and CNACG pursuant to which, among other things, CNAC has agreed to assign the indebtedness owed to it by Fly Top and CNAL to CNACG
'Assignment'	the assignment by CNAC to CNACG of the indebtedness owned by Fly Top and CNAL to CNAC contemplated under the Agreement to Assign Indebtedness
'associate(s)'	has the meaning ascribed thereto under the Listing Rules
'Beijing Air Catering'	Beijing Air Catering Co., Ltd., a company incorporated under the laws of the PRC, the registered share capital of which is owned by the Company (through Fly Top) and Hongkong Beijing Air Catering Ltd. by 60% and 40% respectively immediately prior to the completion of the Sale and will be owned by CNACG and Hongkong Beijing Air Catering Ltd. by 60% and 40% respectively upon completion of the Sale
'CNAC'	China National Aviation Company Limited, a company incorporated in Hong Kong and a wholly-owned subsidiary of the Company as at the date of this announcement
'CNACG'	China National Aviation Corporation (Group) Limited, a company incorporated under the laws of Hong Kong and a wholly-owned subsidiary of CNAHC as at the date of this announcement
'CNAHC'	China National Aviation Holding Company, a company incorporated under the laws of the PRC
'CNAL'	China National Aviation Logistics Company Limited, a company incorporated under the laws of Hong Kong, which holds 25% equity interest in the issued share capital of Tradeport
'Company'	Air China Limited, a company incorporated under the laws of the PRC, whose H shares are listed on The Stock Exchange of Hong Kong Limited as its primary listing venue and on the Official List of the UK Listing Authority as its secondary listing venue, and whose A shares are listed on the Shanghai Stock Exchange
'Director(s)'	the director(s) of the Company
'Fly Top'	Fly Top Limited, a company incorporated in the British Virgin Islands, which holds 60% equity interest in the issued share capital of each of Beijing Air Catering and Southwest Air Catering and 20.2% equity interest in the issued share capital of LSG
'Group'	the Company and its subsidiaries and joint ventures
'HK$'	Hong Kong dollars, the lawful currency of Hong Kong
'Hong Kong'	the Hong Kong Special Administrative Region of the PRC
'JASL'	Jardine Airport Services Limited, a company incorporated under the laws of Hong Kong, the issued share capital of which is owned by the Company (through CNAC) and Jardine, Matheson & Co., Limited by 50% and 50% respectively immediately prior to the completion of the Sale and will be owned by CNACG and Jardine, Matheson & Co., Limited by 50% and 50% respectively upon completion of the Sale
'Listing Rules'	the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited
'LSG'	LSG Lufthansa Services Hong Kong Limited, a company incorporated under the laws of Hong Kong, the issued share capital of which is owned by the Company (through Fly Top), LSG Catering Hong Kong Ltd., Hong Kong Dragon Airlines Ltd. and Hong Kong International Air Catering Ltd. by approximately 20.2%, 38.1%, 31.9% and 9.8%, respectively, immediately prior to the completion of the Sale and will be owned by CNACG, LSG Catering Hong Kong Ltd., Hong Kong Dragon Airlines Ltd. and Hong Kong International Air Catering Ltd. by approximately 20.2%, 38.1%, 31.9% and 9.8%, respectively, upon completion of the Sale
'PRC'	the People's Republic of China, excluding, for the purpose of this announcement only, Hong Kong, the Macau Special Administrative Region and Taiwan
'RMB'	Renminbi, the lawful currency of the PRC
'Sale'	the sale of equity interest in Fly Top, CNAL and JASL contemplated under the Agreement for the Sale and Purchase of the Sale Shares
'Sale Shares'	the two ordinary shares of HK$10 each in the capital of CNAL representing the entire issued share capital of CNAL, the 10 ordinary shares of US$1 each in the capital of Fly Top representing the entire issued share capital of Fly Top, and the 500 ordinary shares of HK$10 each in the capital of JASL representing 50% of the issued share capital of JASL
'Southwest Air Catering'	Southwest Air Catering Company Limited, a company incorporated under the laws of the PRC, the registered share capital of which is owned by the Company (through Fly Top) and Hongkong Southwest Air Catering Ltd. by 60% and 40% respectively immediately prior to the completion of the Sale and will be owned by CNACG and Hongkong Southwest Air Catering Ltd. by 60% and 40% respectively upon completion of the Sale
'Tradeport'	Tradeport Hong Kong Limited, a company incorporated under the laws of Hong Kong, the issued share capital of which is owned by the Company (through CNAL), HKL (Tradeport) Investment Limited and Pantares Tradeport Asia Limited by 25%, 37.5% and 37.5%, respectively, immediately prior to the completion of the Sale and will be owned by CNACG HKL (Tradeport) Investment Limited and Pantares Tradeport Asia Limited by 25%, 37.5% and 37.5%, respectively upon completion of the Sale
'US$'	United States dollars, the lawful currency of the United States

By order of the Board

Air China Limited

Huang Bin Li Man Kit

Joint Company Secretaries

Beijing, 10 June 2008

As at the date of this Notice, the Directors of the Company are Messrs Kong Dong, Wang Shixiang, Yao Weiting, Ma Xulun, Christopher Dale Pratt, Chen Nan Lok, Philip, Cai Jianjiang, Fan Cheng, Hu Hung Lick, Henry*, Wu Zhipan*, Zhang Ke* and Jia Kang*.

* Independent non-executive Director of the Company

 

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