Formal Notice-Connected Transaction
Hong Kong Exchangesand Clearing Limited and The Stock Exchangeof 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 orin 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: 00753)
CONNECTED TRANSACTIONS: ACQUISITIONS OF EQUITY INTERESTS IN CNAF
CAPITAL INJECTION INTO CNAF AND
RELATED PROFIT FORECAST
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THE ACQUISITIONS The Board announces that on 24 December 2014, the Company entered into the Equity Transfer Agreements with each of AIE, Shantou Industrial and Phoenix Industrial, pursuant to which, AIE, Shantou Industrial and Phoenix Industrial agreed to transfer to the Company, and the Company agreed to acquire, the AIE Interests, the Shantou Interests and the Phoenix Interests, respectively, at a consideration of RMB28,065,845.88 (equivalent to approximately HK$35,362,966), RMB4,726,113.94 (equivalent to approximately HK$5,954,904) and RMB2,326,702.25 (equivalent to approximately HK$2,931,645), respectively. Upon completion of the Acquisitions, the respective interest of the Company, CNAHC and AMS Global in the registered capital of CNAF will become 24.14%, 75.54% and 0.32%, respectively. THE CAPITAL INJECTION The Board announces that on 24 December 2014, the Company and CNAHC entered into the Capital Injection Agreement, pursuant to which the Company and CNAHC decided to increase the registered capital of CNAF and inject additional capital into CNAF. |
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According to the Capital Injection Agreement, upon completion of the Capital Injection, each of the Company and CNAHC will have an interest of 51% and 49% in the total enlarged registered capital of CNAF, respectively, and CNAF will become a non-wholly owned subsidiary of the Company. LISTING RULES IMPLICATIONS As at the date of this announcement, CNAHC is a controlling shareholder (as defined under the Listing Rules) of the Company and thus a connected person of the Company. As Phoenix Industrial is a subsidiary of CNAHC, it constitutes an associate of CNAHC and therefore a connected person of the Company under the Listing Rules. In addition, CNAHC, being CNAF's substantial shareholder (as defined under the Listing Rules), is a controller of the Company. Accordingly, the Acquisitions constitute connected transactions of the Company under Chapter 14A of the Listing Rules. Furthermore, as CNAHC is a connected person of the Company, the Capital Injection constitutes a connected transaction of the Company under the Listing Rules. The Company has aggregated the Acquisitions with the Capital Injection for the purpose of calculating the size of the Transactions in accordance with the relevant requirement of the Listing Rules as they both involve acquisition of interests in CNAF. As each of the applicable percentage ratios (as defined under the Listing Rules) calculated after such aggregation is more than 0.1% but less than 5%, the Transactions are subject to the reporting and announcement requirements, but are exempt from the independent shareholders' approval requirement under Chapter 14A of the Listing Rules. RELATED PROFIT FORECAST For each of the Acquisitions and the Capital Injection, China United was appointed as the independent valuer for the appraisal of the shareholders' equity of CNAF as at 31 December 2013. China United has adopted the income approach for the valuation. Therefore, the Valuation Reports constitute profit forecast under Rule 14.61 of the Listing Rules. |
BACKGROUND
CNAF is a company incorporated in the PRC and is primarily engaged in providing financial services to CNAHC, its subsidiaries and associates. As at the date of this announcement, CNAF is owned as to
75.54% by CNAHC, 19.31% by the Company,3.86% by AIE, 0.65% by Shantou Industrial, 0.32% by Phoenix Industrial and 0.32%by AMS Global, respectively. The Company proposes to consolidate the financial results of CNAF as its subsidiary by carrying out the following transactions:
(a) acquiring the equity interests held by each of AIE, Shantou Industrial, Phoenix Industrial and
AMS Global in the registered capital of CNAF; and
(b) making capital injectioninto CNAF.
Accordingly, the Company has entered into the Equity Transfer Agreements and the Capital Injection Agreement, and plans to enter into an equity transfer agreement with AMS Global in due course to acquire the AMS Interests. Upon completion of the acquisitions of the AIE Interests, Shantou Interests, Phoenix Interests and AMS Interests, and the Capital Injection, the Company would be interested in 51% of the registered capital of CNAF and CNAFwould become a subsidiary of the Company.
THE ACQUISITIONS Introduction
The Board announces that on 24 December 2014,the Company entered into the Equity Transfer Agreements with each of AIE, Shantou Industrial and Phoenix Industrial, pursuant to which, AIE, Shantou Industrial and Phoenix Industrial agreed to transfer to the Company, and the Company agreed to acquire, the AIE Interests, the Shantou Interests and the Phoenix Interests, respectively, at a consideration of RMB28,065,845.88 (equivalent to approximately HK$35,362,966), RMB4,726,113.94 (equivalent to approximately HK$5,954,904) and RMB2,326,702.25 (equivalent to approximately HK$2,931,645), respectively.
Equity Transfer Agreements
The principal terms of the Equity Transfer Agreements are summarized as follows:
Date: 24 December 2014
Purchaser: the Company
Vendors: AIE, in respect of the AIE Interests;
Shantou Industrial,in respect of the Shantou Interests; and
Phoenix Industrial,in respect of the Phoenix Interests
Target to be Acquired
(a) the AIE Interests;
(b) the Shantou Interests;and (c) the Phoenix Interests Consideration
The consideration for the acquisition of the AIE Interests, the Shantou Interests and the Phoenix Interests is RMB28,065,845.88 (equivalent to approximately HK$35,362,966), RMB4,726,113.94 (equivalent to approximately HK$5,954,904) and RMB2,326,702.25 (equivalent to approximately
HK$2,931,645), respectively, which was determined after arm's length negotiation between the relevant parties,
taking into account the appraisal value of the shareholders' equity of CNAF(excluding the dividend to be paid
by CNAF for the year 2014) as at 31 December 2013 as set out in the Equity Transfer Valuation Report.
According to the Equity Transfer ValuationReport, the book valueof the net assets of CNAF was RMB966,654,700
(equivalent to approximately HK$1,217,984,922) as at 31 December 2013, and the appraisal value of the net assets of CNAF amounted to RMB981,620,700 (equivalent to approximately HK$1,236,842,082) as at 31
December 2013.
The consideration shall be paid by the Company with its internal resources in one lump sum to each of AIE, Shantou
Industrial andPhoenix Industrial within 180 days afterthe relevant Equity Transfer Agreement becomes effective.
Condition to the Equity Transfer Agreements Becoming Effective
The Equity Transfer Agreements will becomeeffective upon obtainingof the approval by relevant authorities, including the
China Banking Regulatory Commission or its local counterparts.
Interests in the Registered Capital of CNAF upon Completion of the Acquisitions
Upon completion of the Acquisitions, each of the Company, CNAHC and AMS Global will be interested in 24.14%, 75.54% and 0.32%, respectively, in the registered capital of CNAF.
THE CAPITAL INJECTION Introduction
The Board announces that on 24 December 2014, theCompany and CNAHC entered into the Capital Injection Agreement, pursuant to which the Company and CNAHC conditionally agreed to increase the registered capital of CNAF and inject additionalcapital into CNAF.
Capital Injection Agreement
The principal terms of the Capital Injection Agreement are summarized as follows:
Date: 24 December 2014
Parties: the Company and CNAHC
Capital Injection
Pursuant to the Capital Injection Agreement, the Company and CNAHC have agreed to:
(a) increase the registered capital of CNAF from RMB505,269,500 (equivalent to approximately
HK$636,639,570) to RMB1,127,961,864 (equivalent to approximately HK$1,421,231,949); and
(b) inject additional capital in CNAF in the amount of RMB571,819,449.68 (equivalent to approximately HK$720,492,507) and RMB171,020,919.65 (equivalent to approximately HK$215,486,359), respectively, and the portion in excess of the proposed increment of registered capital of CNAF pursuant to subparagraph (a) above will be contributedto the capital reserve of CNAF.
The Capital Injection Agreement may only become effective after the Company and AMS Global enter into an equity transfer agreement for the Company to acquire the AMS Interests andthe Capital Injection will not be made in proportion to the respective interest of the Company and CNAHCin the registered capital of CNAF. According to the Capital Injection Agreement, upon completion of the Capital Injection, each of the Company and CNAHC will havean interest of 51% and 49%in the enlarged registeredcapital of CNAF, respectively.
Consideration
Pursuant to the Capital Injection Agreement, both the Company and CNAHC shallsettle their capital injection commitment
within three months after the Capital Injection Agreement becomes effective. The Company will satisfy its capital injection commitment with the dividend it would have received from CNAF in the amount of RMB43,717,420.68 (equivalent to approximately HK$55,083,950) and cash payment in the amount of RMB528,102,029 (equivalent to approximately
HK$665,408,557), which will be financed by the Company's internal resources.CNAHC will satisfy its capital injection commitment with the dividend it would have received from CNAF in the amount of RMB171,020,919.65
(equivalent to approximately HK$215,486,359).
The amount to be injected by each of the Company and CNAHC in CNAF under the Capital Injection was determined
after arm's length negotiation between the parties, taking into account the appraisal value of the shareholders' equity of
CNAF (excluding the dividend to be paid by CNAF for the year2014) as at 31 December 2013 as set out in the Capital
Injection Valuation Report.
According to the Capital Injection Valuation Report, the book value of the net assets of CNAF was RMB966,654,700
(equivalent to approximately HK$1,217,984,922) as at 31 December 2013, and the appraisal value of the net assets of CNAF amounted to RMB981,620,700 (equivalent to approximately HK$1,236,842,082) as at 31
December 2013.
Condition to the Capital Injection Agreement Becoming Effective
The Capital Injection Agreement will become effective upon obtaining approval of the Capital Injection from the Beijing Bureau of China Banking Regulatory Commission after the Company and AMS Global enter into an equity transfer agreement for the Company to acquire the AMS Interests.
Board Composition of CNAF
According to the Capital Injection Agreement, following the completion of the Capital Injection, the board of directorsof CNAF shall consist of seven directors and each of the Company and CNAHC shall be entitled to recommend four and two directors,respectively, and the last one director shall be electedby CNAF's employees.
Completion
According to the Capital Injection Agreement, the required documents will be filed with the relevant authorities to change the registration record of the registeredcapital of CNAF within 20 business days aftermaking the Capital Injection.
Interests in the Registered Capital of CNAF upon Completion of the Capital Injection
According to the Capital Injection Agreement, upon completion of the Capital Injection, each of the Companyand CNAHC will havean interest in the amount of RMB575,260,550.64 (equivalent to approximately HK$724,828,294) and RMB552,701,313.36 (equivalent to approximately HK$696,403,655), respectively, representing an interest of 51%and 49% in theenlarged registered capital of CNAF, respectively.
The table below sets out each of the Company and CNAHC's interestin the registered capital of
CNAF immediately before and after the completion of the Capital Injection.
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Before completion of the Capital Injection |
After completion of the Capital Injection |
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Interest in the registered capital of CNAF |
Percentage |
Interest in the registered capital of CNAF |
Percentage |
|
|
(in RMB) |
|
(in RMB) |
|
|
The Company |
123,602,411 |
24.46% |
575,260,550.64 |
51% |
|
CNAHC |
381,667,089 |
75.54% |
552,701,313.36 |
49% |
|
Total |
505,269,500 |
100% |
1,127,961,864 |
100% |
Upon the completion of the Transactions, CNAF will become a non-wholly owned subsidiary of the Company and the financial results of CNAF will be consolidated into the consolidated financial statements of the Group.
REASONS FOR AND BENEFITS OF THE TRANSACTIONS
Upon the completion of the Transactions, CNAF will become a non-wholly owned subsidiary of the Company. This will enable the Company and its controlled subsidiaries to obtain tailored financial services from CNAF according to their needs and to optimise and improve their financial resources. In addition, CNAF would benefit from the increase in its registered capital which may enable it to explore new businesses.The earnings of CNAF would also be shared among the Company and its controlled subsidiaries.
The Transactions comply with the relevant requirements of business combination under common control. On the date of consolidation, the Company will state the share of the carrying value of owner's equity of CNAF in the consolidated financial statementsof CNAHC as the initial investment costs of the long-term equity investments. The capital reserve of the Company shall be adjusted in accordance to the difference between the initial investment costs of the long-term equity investments and the consideration to be paid. It is expected that there will be no material impact on the overall financial position and operation results of the Company after consolidating CNAF into the Company.
The Board (including the independentnon-executive Directors) considers that theEquity Transfer Agreements and Capital Injection Agreementare on normal commercia lterms or better, and the terms and conditions contained therein are fair and reasonable and in the interests of the Company and the Shareholders as a whole.
LISTING RULES IMPLICATIONS
As at the date of this announcement, CNAHC is a controlling shareholder (as defined under the Listing Rules)
of the Company and thus a connected person of the Company. As Phoenix Industrial is a subsidiary of CNAHC,
it constitutes an associate of CNAHC and therefore a connected person of the Company under the Listing Rules.
In addition, CNAHC, being CNAF's substantial shareholder (as defined under the Listing Rules), is a controller of theCompany. Accordingly, the Acquisitions constitute connected transactions of the Company under Chapter 14A of the Listing Rules. Furthermore, as CNAHC is a connected person of theCompany, the Capital Injection constitutes a connected transaction of the Company under the Listing Rules.
The Company has aggregated the Acquisitions with the Capital Injection for the purpose of calculating the size
of the Transactions in accordance with the relevant requirement of the Listing Rules as they both involve acquisition of interests in CNAF. As each of the applicable percentage ratios (as defined under the Listing Rules) calculated after such aggregation is more than 0.1% but less than 5%, the Transactions are subject to the reporting and announcement requirements, but are exempt from the independent shareholders' approval requirement under Chapter 14A of theListing Rules.
Mr. Cai Jianjiang, Ms. Wang Yinxiang, Mr. Cao Jianxiong and Mr. Feng Gang are considered to have a material interest in the Transactions and therefore have abstained from voting on the relevant Board resolution. Save as mentioned above, none of the other Directorshas a material interest in the Transactions.
PROFIT FORECAST IN RELATION TO THE VALUATION REPORTS
The consideration for each of the Acquisitions and the Capital Injection was determined after arm's length negotiation
between the relevant parties, taking into account, among others, the appraisal value ofthe shareholders' equity of CNAF as at 31 December 2013as set out in the Valuation Reports. The Valuation Reports were prepared based on the income approach, which has taken into account the discounted cash flow forecast of CNAF, and therefore constitute profit
forecast under Rule 14.61 of the Listing Rules (the "Profit Forecast").
Pursuant to Rule 14.62(1) of the Listing Rules, the principal assumptions upon which the Valuation
Reports were based are set out below:
(a) the appraisedassets are being traded in the market; (b) the market for the appraised assets is open;
(c) CNAF will operate as a going concern and its operations will be consistent with its current practice;
(d) there will be no material change in the current policies in the PRC affectingthe macro-economy and tax;
(e) there will be no material change in the socio-economic environment in which CNAF currently operates, and the policies affectingthe tax bases and tax rates applicable to CNAF;
(f) the future management personnel of CNAF will exercise due diligence and continue to operate in accordance with the current managementmodel;
(g) without consideringany new businesses which may be developed by CNAF in the future, the income of CNAF will mainly derive from interest,fees and net commission;
(h) the appraisal is based on the operational strategy, ability and practice of CNAF as at 31
December 2013 without considering any changes which may occur as a result of the change of the management staff in the future;
(i) the parameters used for the appraisal does not take into account the effect of inflation; and
(j) there will not be any material change in the central bank's interest rate and the exchange rate during the period of the Profit Forecast after thedate on which theProfit Forecast has been prepared.
KPMG, the auditors of the Company, have reviewed calculations of the discounted future estimated cash flows used in the ValuationReports. The Board has reviewed the principal assumptions upon which the Profit Forecast is based and are of the view that the Profit Forecast has been made after dueand careful enquiry. A letter from KPMG anda letter from the Board are set out respectively in AppendixI and II to this announcement in compliance with Rule 14.62 of the Listing Rules.
Each of the experts, namely China United and KPMG, has given and has not withdrawn its written consent to the issue of this announcement with the inclusion herein of its letter and/or references to its name in the form and context in which they appear.
The following is the qualification of each expert whohas provided its conclusion or advice, which is contained in this announcement:
Name Qualification
China United Professional Valuer
KPMG Certified Public Accountants
To the best of the Directors' knowledge, information and belief having made all reasonable enquiries, each of China United and KPMG is a third party independent of the Group and its connected persons.
As at the date of this announcement, none of China United and KPMG has any shareholding in any member of the Group or anyright (whether legally enforceable or not) to subscribe for or to nominate persons to subscribe for securities in any member of the Group.
INFORMATION ABOUT THE PARTIES
The Company's principal business activity is air passenger, air cargo and airline-related services. AIE is a wholly owned subsidiary of the Company and its principal activities are import and export trading.
The principal activities of Shantou Industrial include processing plastic packages for food, wholesale of arts and crafts, general merchandise, textile, knitwear, hardware, chemical products and packaged food, and import and export trading.
The principal activities of Phoenix Industrial include cargo handling services, warehousing and logistics.
CNAHC is a state-owned company incorporated in the PRC witha registered capital of RMB10,027,830,000. Its registered address is Air China Plaza, 36 Xiaoyun Road, Chaoyang District, Beijing, the PRC and the legal representative is Mr. Cai Jianjiang. It is primarily engaged in managing its state-owned assets and its equity interest in investees, charter of aircrafts and maintenance of aviationequipment.
CNAF is a company with limited liability incorporated in the PRC. As at the date of this announcement, it is a non-wholly owned subsidiary of CNAHC. CNAF is primarily engaged in providing financial services to CNAHC, its
subsidiaries and associates.
The net profits (both before and after taxation and the extraordinary items) of CNAF for the two financial years ended 31 December2013 were as follows:
|
|
For the year ended 31 December 2012 |
For the year ended 31 December 2013 |
|
|
(RMB) |
(RMB) |
|
Net profit before taxation and extraordinary items |
120,863,000 |
91,305,900 |
|
Net profit after taxation and extraordinary items |
88,838,800 |
69,576,800 |
According to the audited account of CNAF for the year 2013, as at 31 December 2013, the total assets and net assets of CNAF were RMB5,961,269,976.43 (equivalent to approximately HK$7,511,200,170) and RMB966,654,734.40 (equivalent to approximately HK$1,217,984,965), respectively. The total revenue of CNAF for the year ended 31 December 2013 was RMB264,858,359.90 (equivalent to approximately HK$333,721,533).
DEFINITIONS
In this announcement, unless the context otherwise requires, the following expressions shall have the following respectivemeanings:
"Acquisitions" the acquisitions of AIE Interests, Shantou Interests and Phoenix Interests by the Company from AIE, Shantou Industrial and Phoenix Industrial pursuant to the terms of theEquity Transfer Agreements
"AIE" Air China Import and Export Co., Ltd. (國航進出口有限公司), a company incorporated in the PRC with limited liability and a wholly-owned subsidiary of the Company
"AIE Interests" the 3.86% equity interests in the registered capital of CNAF owned by AIE as at the date of this announcement
"AMS Global" AMS Global Transportation Co., Ltd. (華力環球運輸有限公司), a
company incorporated in the PRC with limited liability
"AMS Interests" the 0.32% equity interestsin the registered capital of CNAF owned by AMS Global as at the date of this announcement
"Board" the board of directorsof the Company
"Capital Injection" the proposed increase of the registeredcapital of CNAF pursuant to the Capital Injection Agreement
"Capital InjectionAgreement" the agreement dated 24 December 2014 and entered into between the Company and CNAHC in relation to the Capital Injection
"Capital Injection Valuation Report" the valuation report for the appraisal of the shareholders' equity of CNAF as at 31 December 2013 issued by China United for the Capital Injection on 6 November 2014
"China United" China United Assets AppraisalGroup Co., Ltd (中聯資產評估集團
有限公司), an independent valuer
"CNAF" China National Aviation Finance Co., Ltd., a company incorporated in the PRC with limited liability, the equity interests of whichare owned as to 75.54% by CNAHC, 19.31% by the Company, 3.86% by AIE, 0.65% by Shantou Industrial, 0.32% by AMS Global and
0.32% by Phoenix Industrial, respectively, as at the date of this announcement
"CNAHC" China National Aviation Holding Company, a controlling shareholder of the Company
"Company" Air China Limited, a company incorporated in the PRC, whose H shares arelisted on the Stock Exchange 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
"Equity Transfer Agreements" the equity transfer agreements dated 24 December 2014 and entered into between the Company and each of AIE,Shantou Industrialand Phoenix Industrial in respect of the acquisition of AIEInterests, Shantou Interestsand Phoenix Interests, respectively
"Equity Transfer Valuation Report" the valuation report for the appraisal of the shareholders' equity of CNAF as at 31 December 2013 issued by China United for the Acquisitions on 1 December 2014
"Group" the Company and its subsidiaries
"HK$" or "Hong Kong dollars" Hong Kong dollars, the lawful currency of Hong Kong
"Hong Kong" Hong Kong Special Administrative Region of the PRC
"Listing Rules" the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited
"Phoenix Industrial" Beijing Phoenix Aviation IndustrialCo (北京鳳凰航空實業公司), a collectively owned enterprise incorporated in the PRC
"Phoenix Interests" the 0.32% equity interestsin the registered capital of CNAF owned by Phoenix Industrial as at the date of this announcement
"PRC" the People'sRepublic of China, excluding, for the purpose of this announcement only, Hong Kong, Macau and Taiwan
"RMB" Renminbi,the lawful currency of the PRC
"Shantou Industrial" Air China Shantou IndustrialDevelopment Co. (中國國際航空汕頭 實業發展公司), a company incorporated in the PRC
"Shantou Interests" the 0.65% equity interestsin the registered capital of CNAF owned by Shantou Industrial as at the date of this announcement
"Shareholders" the shareholders of the Company
"Stock Exchange" The Stock Exchange of Hong Kong Limited
"Transactions" the Acquisitions and the Capital Injection
"Valuation Reports" the Equity Transfer Valuation Report and the Capital Injection
Valuation Report
Amounts denominated in RMB in this announcement have been converted into HK dollars at the rate of RMB1 = HK$1.26 for illustration purpose only.
By order of the Board
Air China Limited
Rao Xinyu Tam Shuit Mui
Joint Company Secretaries
Beijing, the PRC, 24 December 2014
As at the date of this notice, the directors of the Company areMr. Cai Jianjiang, Ms. Wang Yinxiang, Mr. Cao Jianxiong, Mr. Feng Gang, Mr. John Robert Slosar, Mr. Ian SaiCheung Shiu, Mr. Song Zhiyong, Mr. Fan Cheng,
Mr. Fu Yang*, Mr. Yang Yuzhong*, Mr. Pan Xiaojiang* and Mr. Simon To Chi Keung*.
* Independent non-executive Director of the Company
APPENDIX I
The followingis the text of a report received from the Company'sauditor, KPMG, Certified Public
Accountants, Hong Kong, for inclusion in this announcement.
8th Floor
Prince's Building
10 Chater Road
Central
Hong Kong
24 December 2014
REPORT ON THE DISCOUNTED FUTURE CASH FLOWS IN CONNECTION WITH THE BUSINESS VALUATIONS OF CHINA NATIONAL AVIATION FINANCE CO., LTD.
TO THE BOARD OF DIRECTORS OF AIR CHINA LIMITED
We refer to the discounted future cash flows on which:
• the business valuation of China National Aviation Finance Co., Ltd. ("CNAF") dated 6
November 2014, prepared by China United Assets Appraisal Group (中聯資產評估集團有限
公司) ("China United") for the proposed capital injection in CNAF by each of Air China
Limited ("the Company")and China National Aviation Holding Company; and
• the business valuation of CNAF dated 1 December 2014 prepared by China United in connection with the Company's proposed acquisition of 3.86%, 0.65% and 0.32% equity interests in the CNAF from each of Air China Import and Export Co.,Ltd., Air China Shantou Industrial Development Co. and Beijing
Phoenix Aviation Industrial Co., respectively.
(collectively, referred to as "the Valuations") are based. The Valuations areprepared based on the discounted future cash flows and are regarded as profit forecasts under paragraph 14.61of the Rules Governing the Listing of Securities
on The Stock Exchange of Hong Kong Limited (the "Listing Rules").
Responsibilities
The directors of Air China Limited (the "Directors") are responsible for the preparation of the discounted future cash flows in accordance with the bases and assumptions determined by the Directors and as setout in the Valuations.This responsibility includes carrying outappropriate procedures relevant to the preparation of the discounted future cash flows for the Valuations and applying an appropriate basis of preparation; and making estimatesthat are reasonable in the circumstances.
It is ourresponsibility to report, as required by paragraph14.62(2) of the Listing Rules, on the calculations of the discounted future cash flows used in the Valuations. The discounted future cash flows do not involve the adoption of accountingpolicies.
Basis of opinion
We conductedour work in accordance with the Hong Kong Standard on Assurance Engagements 3000 "Assurance
Engagements Other Than Audits or Reviews of Historical Financial Information" issued by the Hong Kong Institute of Certified Public Accountants ("HKICPA"). This standard requires that we plan and perform our work to obtain
reasonable assurance as to whether, so far as the calculations are concerned,the Directors have properly compiled the discounted future cash flows in accordance with the bases and assumptions as set out in the Valuations. We performed
procedures on the arithmetical calculations and the compilations of the discounted future cash flows in accordance with
the bases and assumptions. Our work is substantially lessin scope than an auditconducted in accordance with Hong Kong Standards on Auditing issued by the HKICPA. Accordingly, we do not express an audit opinion.
Opinion
In our opinion, so far as the calculations are concerned,the discounted future cash flows have been properly compiledin all material respects in accordance with the bases and assumptions adopted by the Directors as set out in the Valuations.
Other matters
Without qualifying our opinion, we draw to yourattention that we are not reporting on the appropriateness and validity of the bases and assumptions on which the discounted future cash flows are based and ourwork does not constitute
any valuations of CNAFor an expression of an audit or reviewopinion on the Valuations.
The discounted future cash flows depend on future events and on a number of assumptions which cannot be confirmed
and verified in the same way as past results and not all of which may remain valid throughout the period. Our work has been undertaken for the purpose of reporting solely to you under paragraph 14.62(2) of the Listing Rules and for no
other purpose. We accept no responsibility to any other person in respect of, arising out of or in connection with our work.
KPMG
Certified Public Accountants
Hong Kong
APPENDIX II - LETTER FROM THE BOARD OF DIRECTORSOF AIR CHINA LIMITED
December 24, 2014
The Stock Exchange of Hong Kong Limited
11th Floor, One International Finance Centre
1 Harbour View Street
Central, Hong Kong
Dear Sirs,
CONNECTED TRANSACTIONS OF AIR CHINA LIMITED (THE "COMPANY") ACQUISITIONS OF EQUITY INTERESTS IN CHINA NATIONAL AVIATION FINANCE
CO., LTD. ("CNAF")
CAPITAL INJECTION INTO CNAF
We refer to the valuation of the shareholders' equity of CNAF as at 31 December 2013 prepared by
China United Assets AppraisalGroup Co., Ltd (中聯資產評估集團有限公司) (the "Valuer") (the
"Valuation") and set out in the valuation reports (the "Valuation Reports") issued by the Valuer on
6 November 2014 and 1 December 2014, respectively, in connection with the capital injection in
CNAF and the proposed acquisitions of equity interests by the Company.
We understand that in accordance with Rule 14.61 of the Rules Governing the Listing of Securities on The Stock
Exchange of Hong Kong Limited (the "Listing Rules"), the income approach adopted by the Valuer has rendered the Valuation a profit forecast (the "Profit Forecast") under the Listing Rules.
We hereby confirm that, in compliance with the Listing Rules, we have reviewed the calculations for discounted cash flow forecastin the Valuation Reports.
We hereby confirm that the Profit Forecast has been made after due and careful enquiry.
By order of the board Air China Limited Cai Jianjiang Chairman
This information is provided by RNS
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