REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS - FINANCE LEASE

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1 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. 大 連 港 股 份 有 限 公 司 Dalian Port (PDA) Company Limited* (a sino-foreign joint stock limited company incorporated in the People s Republic of China) (Stock Code: 2880) REVISION OF ANNUAL CAPS FOR CONTINUING CONNECTED TRANSACTIONS AND CONTINUING CONNECTED TRANSACTIONS - FINANCE LEASE REVISION OF ANNUAL CAPS FOR THE PROPERTIES AND EQUIPMENT LEASE Reference is made to the announcement issued by the Company dated 30 October 2012 in relation to, amongst other matters, certain connected transactions including the continuing connected transactions under the Properties and Equipment Lease Agreement. As the demand for the land and buildings by the Group from PDA and/or its associate is expected to increase, on 29 October 2013, the Directors approved to increase the annual caps for the Properties and Equipment Lease for the years of 2013, 2014 and As PDA, being the controlling shareholder of the Company, is a connected person of the Company, any transaction under the Properties and Equipment Lease Agreement constitutes a connected transaction for the Company. Because certain applicable percentage ratios (as defined under Rule of the Listing Rules) for the Revised Annual Caps exceed 0.1% but are less than 5%, the Revised Annual Caps are subject to the reporting, announcement and annual review requirements but exempt from the independent shareholders approval requirement under Chapter 14A of the Listing Rules. 1

2 CONTINUING CONNECTED TRANSACTIONS - FINANCE LEASE On 29 October 2013, the Company entered into the Finance Lease Agreement with DLEFL, pursuant to which DLEFL agreed to provide finance leasing to the members of the Group. As DLEFL, being an associate of PDA, is a connected person of the Company, any transaction under the Finance Lease Agreement constitutes continuing connected transactions for the Company under Chapter 14A of the Listing Rules. As certain applicable percentage ratios exceed 0.1% but are less than 5%, the transactions contemplated under the Finance Lease Agreement are subject to the reporting, announcement and annual review requirements but exempt from independent shareholders approval requirements under Chapter 14A of the Listing Rules. A. REVISION OF ANNUAL CAPS FOR THE PROPERTIES AND EQUIPMENT LEASE BACKGROUND Reference is made to the announcement issued by the Company dated 30 October 2012 in relation to, amongst other matters, certain continuing connected transactions including the continuing connected transactions pursuant to the Properties and Equipment Lease Agreement (the 2012 Announcement ). To meet its demands for lands, warehouses and offices, as well as operation needs for trucks and equipment, the Company entered into the Properties and Equipment Lease Agreement with PDA on 30 October 2012 in connection with lease of properties and equipment for three years commencing on 1 January 2013 and ending on 31 December The agreement provides that the properties and equipment shall be leased to the Company and/or its subsidiaries on normal commercial terms or on terms not less favourable to the Group than terms available from independent third parties. Rentals to be charged for leasing properties and equipment shall be at market rate. In the 2012 Announcement, it is disclosed that the estimated aggregate rentals to be paid by the Group (the Existing Annual Caps ) for each of the three years ending 31 December 2013, 2014 and 2005 were RMB41,270, 000, RMB41,333,000 and RMB41,399,000, respectively. 2

3 REVISION OF ANNUAL CAPS It is intended to relocate the Group s passenger and ro-ro business operations to Dalian Bay in Dalian, PRC due to the change of urban planning by the local government and the port planning by the Group. As a result, the demand for the land and buildings by the Group from PDA and/or its associate is expected to increase, and the Directors expect that the Existing Annual Caps for the continuing connected transactions under the Properties and Equipment Lease Agreement will be insufficient for the year ending 31 December 2013 and the following two years, hence, on 29 October 2013, the Board approved to revise the Existing Annual Caps for the three years ending 31 December 2015 as follows: Properties & Equipment Lease Revised estimated 2013 Revised estimated 2014 Revised estimated ,270 46,833 47,899 The Revised Annual Caps for the three years ending 31 December 2015 have been determined mainly by reference to: i. the rental previously paid by the Group to PDA and/or its associated in respect of lease of properties and equipment for each of the two years ended 31 December 2011 and 31 December 2012 and nine months ended 30 September 2013, being RMB 24,486,000, RMB25,421,000 and RMB 31,755,000; and ii. the anticipated increase of demand for the land and buildings due to the planned relocation of the Group s passenger and ro-ro business operations to Dalian Bay in Dalian, the PRC. The Directors confirm that the transaction amounts under the Properties and Equipment Lease Agreement for the period from 1 January 2013 to the date of this announcement comply with the Existing Annual Caps. The Directors (including all independent non-executive Directors) are of the view that the lease of properties and equipment was entered into in the ordinary and usual course of business of the Group and conducted on normal commercial terms, and that the terms of the relevant agreement and the Revised Annual Caps are fair and reasonable and in the interests of the Company and its Shareholders as a whole. 3

4 LISTING RULES IMPLICATIONS PDA, being the controlling shareholder of the Company, is a connected person of the Company as defined under Rule 14A.11 of the Listing Rules. As such, any transaction contemplated under the Properties and Equipment Lease Agreement constitute continuing connected transactions for the Company as defined under the Listing Rules. As certain applicable percentage ratios (as defined under Rule of the Listing Rules) for the Revised Annual Caps exceed 0.1% but are less than 5%, the Revised Annual Caps are subject to the reporting, announcement and annual review requirements but are exempt from the independent shareholders approval requirement under the Listing Rules. Each of Mr. Hui Kai, Mr. Xu Song, Mr. Xu Jian and Mr. Zhang Zuogang, being a Director, also holding a management position with PDA, has therefore abstained from voting on the board resolution approving the Revised Annual Caps. Save as disclosed above, none of the Directors attending the board meeting has a material interest in the aforementioned transaction. B. CONTINUING CONNECTED TRANSACTIONS - FINANCE LEASE FINANCE LEASE AGREEMENT Date: 29 October 2013 Parties: DLEFL; and the Company. Term: from the date of the agreement to 31 December 2018, unless terminated earlier in accordance with the terms of the agreement Major Terms: i. DLEFL shall provide finance lease to the relevant members of the Group as per their respective requirements in respect of leasing containers and computer software and hardware acquired by DLEFL on terms no less favourable to them than terms available to independent third parties; ii. rental payable by the relevant members of the Group shall be determined by reference to market price and shall be paid monthly in cash, and the amount and way of payment shall be provided in each individual agreement by the parties thereto; and iii. with respect to each individual finance lease, the relevant member of the Group shall enter into separate written agreements the terms of which are in all material respects consistent with the binding principles, guidelines, terms and conditions contained in the Finance Lease Agreement. 4

5 Annual Caps No finance leasing transaction was entered into between any member of the Group and DLEFL in the past. Based on the current finance market conditions and with reference to, inter alia, the expected nature and amount of assets to be arranged with finance lease and the value and useful life of the relevant assets, the estimated annual caps for the finance lease to be provided by DLEFL to the Group for each of the six years ending 31 December 2018 are as follows: annual cap annual cap for 2017 for 2018 Finance Lease 6,000 15,000 17,000 18,000 19,000 20,000 REASONS FOR AND BENEFITS OF THE FINANCE LEASE AGREEMENT DLEFL is a licensed institution to carry out finance lease business in China and is an associate of PDA, the controlling shareholder of the Company. The Directors believe that, by entering into the Finance Lease Agreement, the Group is able to access to an alternative source of financing for its business operations. The Directors also consider that DLEFL, with its relationship with the Group and deep knowledge of the business of the Group, is able to provide high quality and individualized finance lease services to the Group. Taking into account the major terms disclosed above, the Directors (including the independent non-executive Directors) are of the view that the Finance Lease Agreement was arrived at after arm s length negotiations between the parties and has been entered into on normal commercial terms in the ordinary and usual course of business of the Group, and the terms of the Finance Lease Agreement including the proposed annual caps are fair and reasonable and in the interests of the Shareholders and the Company as a whole. LISTING RULES IMPLICATIONS DLEFL, being an associate of PDA, is a connected person of the Company as defined under Rule 14A.11 of the Listing Rules. As such, any transaction contemplated under the Finance Lease Agreement constitutes a connected transaction for the Company as defined under Chapter 14A of the Listing Rules. As certain applicable percentage ratios (as defined under Rule of the Listing Rules) for the proposed annual caps exceed 0.1% but are less than 5%, the transactions contemplated under the Finance Leas Agreement and the proposed annual caps are subject to the reporting, announcement and annual review 5

6 requirements but is exempt from the independent shareholders approval requirement under the Listing Rules. Each of Mr. Hui Kai, Mr. Xu Song, Mr. Xu Jian and Mr. Zhang Zuogang, being a Director, also holding a management position with PDA, has therefore abstained from voting on the board resolution approving the Finance Lease Agreement and the proposed annual caps. Save as disclosed above, none of the Directors attending the board meeting has a material interest in the aforementioned agreement. VIEW OF INDEPENDENT FINANCIAL ADVISER Rule 14A.35(1) of the Listing Rules provides that the term of an agreement governing continuing connected transaction must not exceed three years, except in special circumstances which are limited to cases where the nature of the transaction requires the contract to be of a duration longer than three years. Accordingly, the Independent Financial Adviser has been appointed to explain why a longer period for the Finance Lease Agreement is required and to confirm it is normal business practice for lease agreements of this type to be of such duration. Since the finance lease under the Finance Lease Agreement is for a term of 63 months, in assessing whether it is the normal business practice for lease agreements of this type to be of such duration, the Independent Financial Adviser has discussed the principle reasons for a longer term under the Finance Lease Agreement with the management of the Company and advised the following factors: A. Working capital planning By entering into the Finance Lease Agreement with longer duration, the Group s payments on the costs of the containers and computer software & hardware are allowed to be effected over a longer period. Thus, it would be easier for the relevant members of the Group to acquire the containers and computer software & hardware under a sixty three-month lease than a three-year lease as rental under a three-year lease would be higher and create a greater stress to the planning of working capital by the relevant members of the Group. B. Useful lives of containers and computer software & hardware The Directors estimate that useful lives of containers and computer software & hardware are around 10 years, depending on the type of goods in store and the turnover frequency. It is one of the typical features of a finance lease that the lease term represents a major part of the leased item s useful life. Therefore, the Independent Financial Adviser is of the view that it is reasonable and normal business 6

7 practice to lease the containers and computer software & hardware, which have around 10 years useful lives, under finance lease of more than three years. C. Comparable transactions The Independent Financial Adviser has performed search of comparable transactions involving finance leases entered into by companies listed on the Stock Exchange. Such comparable transactions are selected based on the criteria that the listed companies should be in the port operating or marine industry and such transactions have been announced on the website of the Stock Exchange. The comparable transactions identified based on the criteria have duration of the leases range from 4.5 years to 25 years, which are longer than three years. Accordingly, the Independent Financial Adviser is of the view that leases of more than three years of this type, such as that under the Finance Lease Agreement, are normal business practice. Based on the above, the Independent Financial Adviser is of the view that the term of the Finance Lease Agreement, being more than three years, is the normal business practice for finance lease arrangements of this type to be of such duration. C. GENERAL INFORMATION The principal activities of the Group are: (i) the provision of terminal and related logistics services for oil products and liquefied chemicals; (ii) the provision of terminal and related logistics services for containers; (iii) automobile terminal and related logistics services; (iv) ore terminal and related logistics services; (v) general cargo terminal and related logistics services; (vi) bulk grain terminal and related logistics services; (vii) passenger and roll-on, roll-off terminal and related logistics services; and (viii) port value-added services and ancillary port operations. PDA is principally engaged in port development, port related logistics business, financial services and property development. It is the controlling shareholder of the Company holding approximately 55.62% of the total issued share capital of the Company as at the date of announcement. DLEFL is principally engaged in finance leasing business in respect of construction machinery and equipment, agricultural machinery, and computer and communication equipment, etc. D. DEFINITIONS In this announcement, the following expressions have the meanings set out below unless 7

8 the context requires otherwise. associate Board has the meaning ascribed to it under the Listing Rules; the board of Directors; Company 大 連 港 股 份 有 限 公 司 (Dalian Port (PDA) Company Limited * ), a joint stock limited company incorporated in the PRC; connected person controlling shareholder DLEFL Director(s) has the meaning ascribed to it under the Listing Rules; has the meaning ascribed to it under the Listing Rules; 大 連 裝 備 融 資 租 賃 有 限 公 司 (Dalian Equipment Finance Lease Company Limited), an associate of PDA; the director(s) of the Company; Finance Lease Agreement Group Independent Financial Adviser Listing Rules PDA the framework finance lease agreement entered into between the Company and DLEFL on 29 October 2013 in relation to the provision of finance lease by DLEFL to the Group; the Company and its subsidiaries; TC Capital Asia Limited, a licensed corporation to carry on Type 1 (dealing in securities) and Type 6 (advising on corporate finance) regulated activities under the Securities and Futures Ordinance (Cap. 571 of the Laws of Hong Kong Special Administrative Region of PRC, being the independent financial adviser to the Company in respect of the duration of the Finance Lease Agreement; the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited; 大 連 港 集 團 有 限 公 司 (Dalian Port Corporation Limited), the controlling shareholder of the Company and a limited liability company established in the PRC and wholly-owned by Dalian Municipal Government; 8

9 PRC Properties and Equipment Lease Properties and Equipment Lease Agreement the People s Republic of China (for the purpose of this announcement, excluding Hong Kong Special Administrative Region, Macau Special Administrative Region and Taiwan); the lease of certain land use rights, buildings and equipment by the Group from PDA and/or its relevant associates; the framework agreement in relation to the leasing of land use rights, buildings and equipment entered into between the Company and PDA on 30 October 2012; Revised Caps RMB Annual the revised annual caps for lease of properties and equipment pursuant under the Properties and Equipment Lease Agreement for each of the three years ending 31 December2013, 31 December 2014, and 31 December 2015, respectively; Renminbi, the lawful currency of the PRC; Shareholders Stock Exchange the shareholders of the Company; and The Stock Exchange of Hong Kong Limited. Dalian City, Liaoning Province, the PRC 29 October 2013 By Order of the Board GUI Yuchan LEE, Kin Yu Arthur Joint Company Secretaries As at the date of this announcement, the Board comprises of: Executive directors: HUI Kai, XU Song, ZHU Shiliang and SU Chunhua Non-executive director: XU Jian and ZHANG Zuogang Independent non-executive directors: LIU Yongze, GUI Liyi, Wan Kam To, Peter and Yu Long * The Company is registered as a non-hong Kong company under Part XI of the Companies Ordinance (Chapter 32 of the Laws of Hong Kong) under the English name Dalian Port (PDA) Company Limited. 9